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ECONOMIC 
DEMOCRACY 


BY 


C.    H.    DOUGLAS 

Major,  Royal  Air  Force  (Reserve),  M.  Inst.  Mech.  E., 
M.  Inst.  E.  E. 


m 


NEW  YORK 
HARCOURT,  BRACE   AND   HOWE 

1920 


COPYRIGHT,  1920,   BY 
HARCOUBT,   BRACE  AND  HOWK,   mC. 


THE  QUINN  •  eOOEN  COMPANY 
RAHWAV.  N    J, 


TO  MY  WIFE 

mtJiout  whose  understanding 

this  hook  could  not  have 

been  written. 


PREFACE     • 

Written  for  the  most  part  under  the  pressure  of 
War  conditions,  this  book  is  an  attempt  to  disentangle 
from  a  mass  of  superficial  features  such  as  Profiteer- 
ing, and  alleged  scarcity  of  commodities,  a  sufficient 
portion  of  the  skeleton  of  the  Structure  we  call  So- 
ciety as  will  serve  to  suggest  sound  reasons  for  the 
decay  with  which  it  is  now  attacked;  and  afterwards 
to  indicate  the  probable  direction  of  sound  and  vital 
reconstruction. 

My  apologies  and  sympathy  are  offered  to  the 
reader  in  respect  of  the  severe  concentration  which 
its  tabloid  treatment  of  technical  methods  demands; 
but  I  have  some  grounds  for  supposing  that  the  mat- 
ter it  contains  has  aroused  sufficient  interest  to  excuse 
its  presentation  in  this  form. 

I  am  indebted  to  my  friend  Mr.  A.  R.  Orage,  the 
Editor  of  The  New  Age  (in  which  review,  together 
with  the  remainder  of  the  book,  it  first  appeared),  for 
the  use  of  the  block  which  forms  the  frontispiece. 

C.  H.  DOUGLAS. 

Heath  End,  Basingstoke. 
November,  1919. 


CONTENTS 


CHAPTER  I 

PAoa 
Over-rated  value  of  consistency — Spirit,  not  form,  im- 
portant— Socialism,  the  reaction  from  commercialism 
— War,  the  rivaler — Meaning  of  American  Declara- 
tion of  Independence — Freedom,  not  system,  the 
goal 1 

CHAPTER  II 

How  catch-phrases  betray — ^Abuse  of  Darwinian  theory 
— Result  in  Germany — The  rise  of  centralized  control 
— Signs  of  its  failure  and  revolt  against  it — Servility 
necessary  to  it — Advantages  of  technical  centraliza- 
tion      7 

CHAPTER  in 

Danger  of  loose  thinking — Socialists  too  sweeping — 
Credit  side  of  capitalism — The  Servile  State — The 
real  enemy — Nationalization  no  cure — Capitalism 
and  centralism — Discrediting  of  Jevonian  Eco- 
nomics— Definition  of  Money — Modern  money  comes 
from  credit  creations — Reaction  in  industry — Scien- 
tific management — ^Piece-work  systems  and  their  rela- 
tion to  money  values — "  Ca'canny  " — Financial  cen- 
tralization and  militarism 19 

CHAPTER  IV 

Personality  not  the  ruling  factor  in  centralism — Over- 
rides personality — ^Lessons  of  history — ^The  cult  of 
Mediaevalism — Its  fallacy — Industrial  organization — 
The  argument  for  super-production — Its  critical  im- 
portance— Staking  out  the  ground  of  argimient  .        .       36 

CHAPTER  V 

Factory  cost  the  heart  of  the  problem — Profit-sharing — 
The  rate  of  distribution  of  money — ^The  rate  of  in- 


viii  CONTENTS 

PAGE 

creaBe  of  prices — Example — Where  the  real  purchas- 
ing power  lies — Loan-credit  and  cash-credit — ^The 
leak  in  the  dollar — Wealth  and  "  weal  "-being — 
Profiteering  not  the  prime  objection  to  existing  sys- 
tem— Summary  of  analysis  of  production  economics      54 

CHAPTER  VI 

Fallacious  arguments  based  on  income-returns — ^Import- 
ance of  loan-credit — How  it  differs  from  pay  and 
wages — Why  starvation  may  exist  amidst  plenty — 
Economic  sabotage — ^Examples — The  mirage  of  fi- 
nance— Why  it  can  never  deliver  the  goods  ...       68 

CHAPTER  VII 

The  final  struggle  approaching — The  issue — Inadequacy 
of  commodity-reward  for  service — Social  symptoms — 
Business  system  not  to  blame — Real  and  effective 
demand — .Productive  system  technically  adequate — 
Decentralized  control — ^The  Shop  Steward  System — 
A  means,  not  an  end — ^A  labor  fallacy       ...       74 

CHAPTER  VIII 

Economic  reconstruction  the  first  necessity — ^Poverty 
largely  artificial — WTiy  war  has  increased  apparent 
prosperity — Function  and  control — Medisevalism  and 
Ultra-modernism — ^The  idea  of  the  Just  Price — Sum- 
mary of  Analysis  of  Social  Structure — The  objective 
of  change — ^The  time-energy  tmit — Process,  the  key  to 
progress — Production  to  a  program — ^The  conditions 
of  economic  emancipation — The  incentive  to  effort — 
Existing  methods — Financial  manipulation — Time- 
work — Piece-work — ^The  basis  of  the  Just  Price — ^Ad- 
ministration not  germane  to  the  idea — ^The  com- 
munity already  owns  the  plant — A  theoretical  solu- 
tion— Definition  of  capital — ^The  Credit  Center — The 
separation  of  function .86 

CHAPTER  IX 

Necessity  of  dealing  with  Society  as  it  is — ^More  purchas- 
ing power  wanted — Futility  of  general  wage  in- 
creases— And  of  excess  profits  taxation — Vital  im- 
portance of  loan-credit — Definition  of  real  credit — 
Credit  derives  from  the  community — Should  be  ac- 
counted for  to  the  community — The  nature  of  the 


CONTENTS 


PAGB 


War  Debt — The  State  a  creditor,  not  a  debtor — How 
to  realize  it — Tune-saving  as  an  incentive — Results 
of  projected  policy — Freedom 110 

CHAPTER  X 

The  relation  of  semi-manufactures  to  credit — The  Clear- 
ing-house— How  to  "  clear  "  overhead  charges — Exact 
statement  of  the  Just  Price — How  to  meet  the  War 
Debt — The  dawn  of  real  co-operation  .        .        .        .119 

CHAPTER  XI 

The  League  of  Nations — Its  form  dependent  on  economic 
system — Ultimate  defeat  of  Centralist  Policy  certain 
— ^How  a  League  of  Free  Peoples  can  come       .       .     130 

CHAPTER  XII 

Concentrated  economic  power  must  be  dissipated — The 
economic  basis  of  sentiment — Education  and  propa- 
ganda— Democratic  control  of  the  Press — The  roots 
of  Economic  Democracy — The  End       ....     137 


VALUES 


PRICES  AND  PURCHASING  POWER 
(See  Chapter  V.) 

The  vertical  columns  represent  the  wages,  salaries,  a/nd  divi- 
dends distributed  to  all  the  persons  affected,  either  as  share- 
holders or  employes,  hy  the  consecutive  factory  stages  in  the 
passage  of  a/n  article  from  the  condition  of  "  raw  material," 
in  the  bottom  left  hand  comer,  to  that  of  an  "  ultimate 
product,"  in  the  top  right  hand  corner. 

The  portion  of  the  diagonal  column  lying  to  the  left  of 
any  vertical  column  represents  the  total  payments  made  out- 
aide  the  factory  concerned. 

The  cross-hatched  portion  of  the  vertical  columns  represents 
approximately  the  personal  and  normal  expenditure  of  the 
individuals  in  receipt  of  purchasing  power  through  the  sources 
indicated,  and  the  small  white  vertical  columns  show  their  cash 
savings.  It  will  be  seen  that  aggregate  prices  increase  much 
faster  than  aggregate  personal  savings,  causing  the  forced 
export  of  manufactured  articles  and  continu^ou^  expansion  of 
financial  credits. 


ECONOMIC  DEMOCRACY 

CHAPTER  I 

Over-rated  value  of  consistency — Spirit,  not  form,  important — 
Socialism,  the  reaction  from  commercialism — War,  the 
revealer — Meaning  of  American  Declaration  of  Inde- 
pendence— Freedom,  not  System,  the  Goal. 

THERE  has  been  a  very  strong  tendency, 
fortunately  not  now  so  strong  as  it  was, 
to  regard  fidelity  to  one  set  of  opinions  as 
being  something  of  which  to  be  proud,  and  con- 
sistency in  the  superficial  sense  as  a  test  of 
character. 

The  Scottish  political  constituent  who  always 
voted  for  a  Liberal  because  he  was  too  Con- 
servative to  change,  has  his  counterpart  in 
every  sphere  of  human  activity,  and  most  par- 
ticularly so  in  that  of  economics,  where  the 
tracing  back  to  first  principles  of  the  dogmas 
used  for  everyday  purposes  requires,  in  addi- 
tion to  some  little  aptitude  and  research,  a 
laborious  effort  of  thought  and  logic  very  for- 
eign to  our  normal  methods. 

1 


2  ECONOMIC  DEMOCRACY 

It  thus  comes  about  that  modification  in  the 
creed  of  the  orthodox  is  both  difficult  and  con- 
ducive to  exasperation;  since  because  the  form 
is  commonly  mistaken  for  the  substance  it  is  not 
clearly  seen  why  a  statement  which  has  em- 
bodied a  sound  principle,  may  in  course  of 
time  become  a  dangerous  hindrance  to  prog- 
ress. 

Of  such  a  character  are  many  of  our  habits 
of  thought  and  speech  to-day.  Because  from 
the  commercial  policy  of  the  nineteenth  century 
has  quite  clearly  sprung  great  advance  in  the 
domain  of  science  and  the  mastery  of  material 
nature,  the  commercialist,  quite  honestly  in 
many  cases,  would  have  us  turn  the  land  into 
a  counting  house  and  drain  the  sea  to  make  a 
factory.  On  the  other  hand  the  Social  Re- 
former, obsessed,  as  well  he  might  be,  with  the 
poverty  and  degradation  which  shoulder  the 
very  doors  of  the  rich,  is  apt  to  turn  his  eyes 
back  to  the  days  antecedent  to  the  Industrial 
Revolution ;  note,  or  assume,  that  the  conditions 
he  deplores  did  not  exist  then,  at  any  rate,  in 
so  desperate  a  degree;  and  condemn  all  busi- 
ness as  abominable. 


ECONOMIC  DEMOCRACY  3 

At  various  well-defined  epochs  in  the  history 
of  civilization  there  has  occurred  such  a  clash 
of  apparently  irreconcilable  ideas  as  has  at  this 
time  most  definitely  come  upon  us.  Now,  as 
then,  from  every  quarter  come  the  unmistakable 
signs  of  crumbling  institutions  and  discredited 
formulae,  while  the  widespread  nature  of  the 
general  unrest,  together  with  the  immense 
range  of  pretext  alleged  for  it,  is  a  clear  indi- 
cation that  a  general  rearrangement  is  im- 
minent. 

As  a  result  of  the  conditions  produced  by 
the  European  War,  the  play  of  forces,  usually 
only  visible  to  expert  observers,  has  become 
apparent  to  many  who  previously  regarded 
none  of  these  things.  The  very  efforts  made  to 
conceal  the  existence  of  springs  of  action  other 
than  those  publicly  admitted,  has  riveted  the 
attention  of  an  awakened  proletariat  as  no 
amount  of  positive  propaganda  would  have 
done.  A  more  or  less  conscious  effort  to  refer 
the  results  of  the  working  of  the  social  and 
political  system  to  the  Bar  of  individual  re- 
quirement has,  on  the  whole,  quite  definitely 
resulted  in  a  verdict  for  the  prosecution;  and 


4  ECONOMIC  DEMOCRACY 

there  is  little  doubt  that  sentence  will  be  pro- 
nounced and  enforced. 

Before  proceeding  to  the  consideration  of  the 
remedies  proposed,  it  may  be  well  to  emphasize 
the  more  salient  features  of  the  indictment,  and 
in  doing  this  it  is  of  the  first  consequence  to 
make  very  sure  of  the  code  against  which  the 
alleged  offenses  have  been  committed.  And 
here  we  are  driven  right  back  to  first  principles 
— to  an  attempt  to  define  the  purposes,  con- 
scious or  unconscious,  which  govern  humanity 
in  its  ceaseless  struggle  with  environment. 

To  cover  the  whole  of  the  ground  is,  of 
course,  impossible.  The  infinite  combinations 
into  which  the  drive  of  evolution  can  assemble 
the  will,  emotions  and  desires,  are  probably  out- 
side the  scope  of  any  form  of  words  not  too 
symbolical  for  everyday  use. 

But  of  the  many  attempts  which  have  been 
made  it  is  quite  possible  that  the  definition  em- 
bodied in  the  majestic  words  of  the  American 
Declaration  of  Independence,  "the  inalienable 
right  of  man  to  life,  liberty  and  the  pursuit  of 
happiness,"  is  still  unexcelled,  although  the 
promise  of  its  birth  is  yet  far  from  complete 


ECONOMIC  DEMOCRACY  6 

justification;  and  if  words  mean  anything  at 
all,  these  words  are  an  assertion  of  the  suprem- 
acy of  the  individual  considered  collectively, 
over  any  external  interest.  Now,  what  does  this 
mean?  First  of  all,  it  does  not  mean  anarchy, 
nor  does  it  mean  exactly  what  is  commonly 
called  individualism,  which  generally  resolves 
itself  into  a  claim  to  force  the  individuality  of 
others  to  subordinate  itself  to  the  will-to-power 
of  the  self-styled  individualist.  And  most  em- 
phatically it  does  not  mean  collectivism  in  any 
of  the  forms  made  f amihar  to  us  by  the  Fabians 
and  others. 

It  is  suggested  that  the  primary  requisite 
is  to  obtain  in  the  readjustment  of  the  economic 
and  political  structure  such  control  of  initiative, 
that  by  its  exercise  every  individual  can  avail 
himself  of  the  benefits  of  science  and  mechan- 
ism; that  by  their  aid  he  is  placed  in  such  a 
position  of  advantage,  that  in  common  with  his 
fellows  he  can  choose,  with  increasing  freedom 
and  independence,  whether  he  will  or  will  not 
assist  in  any  project  which  may  be  placed  be- 
fore him. 

The  basis  of  independence  of  this  character 


6  ECONOMIC  DEMOCRACY 

is  most  definitely  economic ;  it  is  simply  hypoc^ 
risy,  conscious  or  unconscious,  to  discuss  free- 
dom of  any  description  which  does  not  secure 
to  the  indi-vidual,  that  in  return  for  effort  exer- 
cised as  a  right,  not  as  a  concession,  an  average 
economic  equivalent  of  the  effort  made  shall  be 
forthcoming.  As  we  shall  see,  this  means  a 
great  deal  more  than  the  right  to  work;  it 
means  the  right  to  work  for  the  right  end  in 
the  right  way. 

It  seems  clear  that  only  by  a  recognition  of 
this  necessity  can  the  foundations  of  society  be 
so  laid  that  no  superstructure  built  upon  them 
can  fail,  as  the  superstructure  of  capitalistic 
society  is  most  unquestionably  failing,  because 
the  pediments  which  should  sustain  it  are 
honeycombed  with  decay. 

Systems  were  made  for  men,  and  not  men 
for  systems,  and  the  interest  of  man,  which  is 
self-development,  is  above  all  systems,  whether 
theological,  political  or  economic. 


CHAPTER  n 

How  catch-phrases  betray — ^Abuse  of  Darwinian  theory — 
Result  in  Germany — The  rise  of  centralized  control — 
Signs  of  its  failure  and  revolt  against  it — Servility  neces- 
sary to  it — Advantages  of  technical  centralization. 

ACCEPTING  this  statement  as  a  basis  of 
L  constructive  effort,  it  seems  clear  that 
all  forms,  whether  of  government,  industry  or 
society,  must  exist  contingently  to  the  further- 
ance of  the  principles  contained  in  it.  If  a 
State  system  can  be  shown  to  be  inimical  to 
them — it  must  go;  if  social  customs  hamper 
their  continuous  expansion — they  must  be 
modified;  if  unbridled  industrialism  checks 
their  growth,  then  industrialism  must  be 
reined  in.  That  is  to  say,  we  must  build  up 
from  the  individual,  not  down  from  the  State. 
It  is  necessary  to  be  very  clear  in  thus  de- 
fining the  scope  of  our  inquiry  since  the  exalta- 
tion of  the  State  into  an  authority  from  which 
there  is  no  appeal,  the  exploitation  of  a  public 
opinion  which  at  the  present  time  is  frequently 
manufactured    for   interested    purposes,    and 

7 


8  ECONOMIC  DEMOCRACY 

other  attempts  to  shift  the  center  of  gravity  of 
the  main  issues — these  are  all  features  of  one 
of  the  policies  which  it  is  our  purpose  to 
analyze.  If,  therefore,  any  condition  can  be 
shown  to  be  oppressive  to  the  individual,  no 
appeal  to  its  desirability  in  the  interests  of  ex- 
ternal organization  can  be  considered  in  ex- 
tenuation ;  and  while  co-operation  is  the  note  of 
the  coming  age,  our  premises  require  that  it 
must  be  the  co-operation  of  reasoned  assent,  not 
regimentation  in  the  interests  of  any  system, 
however  superficially  attractive. 

There  is  no  doubt  whatever  that  a  mangled 
and  misapplied  Darwinism  has  been  one  of  the 
most  potent  factors  in  the  social  development  of 
the  past  sixty  years ;  from  the  date  of  the  publi- 
cation of  *  *  The  Origin  of  Species ' '  the  theory  of 
the  ** survival  of  the  fittest"  has  always  been 
put  forward  as  an  omnibus  answer  to  any  in- 
dividual hardship;  and  although  such  books  as 
Mr.  Benjamin  Kidd's  ''Science  of  Power"  have 
pretty  well  exposed  the  reasons  why  the  indi- 
vidual, efficient  in  his  own  interest  and  conse- 
quently well-fitted  to  survive,  may  and  will  pos- 
sess characteristics  which  completely  unfit  him 


ECONOMIC  DEMOCRACY  9 

for  positions  of  power  in  the  community,  we 
may  begin  our  inquiry  by  noticing  that  one  of 
the  most  serious  causes  of  the  prevalent  dis- 
satisfaction and  disquietude  is  the  obvious  sur- 
vival, success  and  rise  to  positions  of  great 
power,  of  individuals  to  whom  the  term  ''fit- 
test" could  only  be  applied  in  the  very  nar- 
rowest sense.  And  in  admitting  the  justice  of 
the  criticism,  it  is  not  of  course  necessary  to 
question  the  soundness  of  Darwin's  theory. 
Such  an  admission  is  simply  evidence  that  the 
particular  environment  in  which  the  ''fittest" 
are  admittedly  surviving  and  succeeding  is  un- 
satisfactory;  that  in  consequence  those  best 
fitted  for  it  are  not  representative  of  the  ideal 
existent  in  the  mind  of  the  critic,  and  that  en- 
vironment cannot  be  left  to  the  unaided  law  of 
Darwinian  evolution,  in  view  of  its  effect  on 
other  than  material  issues. 

To  what  extent  the  rapid  development  of  sys- 
tematic organization  is  connected  with  the 
statement  of  the  law  of  biological  evolution 
would  be  an  interesting  speculation;  but  the 
second  great  factor  in  the  changes  which  have 
been  taking  place  during  the  final  years  of  the 


10  ECONOMIC  DEMOCRACY 

epoch  just  closing  is  undoubtedly  the  marshal- 
ing of  effort  in  conformity  with  well-defined 
principles,  the  enunciation  of  which  has  largely 
proceeded  from  Germany,  although  their  source 
may  very  possibly  be  extra-national ;  and  while 
these  principles  have  been  accepted  and  devel- 
oped in  varying  degree  by  the  governing  classes 
of  all  countries,  the  dubious  honor  of  applying 
them  with  rigid  logic  and  a  stem  disregard  of 
by-products,  belongs,  without  question,  to  the 
land  of  their  birth.  They  may  be  summarized 
as  a  claim  for  the  complete  subjection  of  the 
individual  to  an  objective  which  is  externally 
imposed  on  him;  which  it  is  not  necessary  or 
even  desirable  that  he  should  understand  in 
full ;  and  the  forging  of  a  social,  industrial  and 
political  organization  which  will  concentrate 
control  of  policy  while  making  effective  revolt 
completely  impossible,  and  leaving  its  origi- 
nators in  possession  of  supreme  power. 

This  demand  to  subordinate  individuality  to 
the  need  of  some  external  organization,  the 
exaltation  of  the  State  into  an  authority  from 
which  there  is  no  appeal  (as  if  the  State  had 
a  concrete   existence  apart  from   those   who 


ECONOMIC  DEMOCRACY  11 

operate  its  functions),  the  exploitation  of  ** pub- 
lic opinion"  manipulated  by  a  Press  owned  and 
controlled  from  the  apex  of  power,  are  all  fea- 
tures of  a  centralizing  policy  commended  to  the 
individual  by  a  claim  that  the  interest  of  the 
community  is  thereby  advanced,  and  its  results 
in  Germany  have  been  nothing  less  than*  ap- 
palling. The  external  characteristics  of  a  na- 
tion with  a  population  of  65  millions  have  been 
completely  altered  in  two  generations,  so  that 
from  the  home  of  idealism  typified  by  Schiller, 
Goethe,  and  Heine,  it  has  become  notorious  for 
bestiality  and  inhumanity  only  offset  by  a  slav- 
ish discipline.  Its  statistics  of  child  suicide 
during  the  years  preceding  the  war  exceeded 
by  many  hundreds  per  cent,  those  of  any  other 
country  in  the  world,  and  were  rising  rapidly. 
Insanity  and  nervous  breakdown  were  becom- 
ing by  far  the  gravest  problem  of  the  German 
medical  profession.  Its  commercial  morality 
was  devoid  of  all  honor,  and  the  external  in- 
fluence of  Prussian  ideals  on  the  world  has  un- 
doubtedly been  to  intensify  the  struggle  for 
existence  along  lines  which  quite  inevitably  cul- 
minated in  the  greatest  war  of  all  history. 


12  ECONOMIC  DEMOCRACY 

The  comparative  rapidity  with  which  the 
processes  matured  was  no  doubt  aided  by  an 
essential  servility  characteristic  of  the  Teutonic 
race,  and  the  attempt  to  embody  these  prin- 
ciples in  Aiiglo-Saxon  communities  has  not  pro- 
ceeded either  so  fast  or  so  far ;  but  every  indi- 
cation points  to  the  imminence  of  a  determined 
effort  to  transfer  and  adopt  the  policy  of  cen- 
tral, or,  more  correctly,  pyramid,  control  from 
the  nation  it  has  ruined  to  others,  so  far  more 
fortunate. 

Thus  far  we  have  examined  the  psychological 
aspect  of  control  exercised  through  power. 
Let  us  turn  for  a  moment  to  its  material  side. 
Inequalities  of  circumstance  confront  us  at 
every  turn.  The  vicious  circles  of  unemploy- 
ment, degradation  and  unemployability,  the  dis- 
parity between  the  reward  of  the  successful 
stock-jobber  and  the  same  man  turned  private 
soldier,  enduring  unbelievable  discomfort  for  a 
dollar  per  day,  the  gardener  turned  piece- 
worker, earning  three  times  the  pay  of  the 
skilled  mechanic,  are  instances  at  random  of  the 
p'^ratic  working  of  the  so-called  law  of  supply 
ttr»d  .  emanrl 


ECONOMIC  DEMOCRACY  13 

In  the  sphere  of  politics  it  is  clear  that  all 
settled  principle  other  than  the  consolidation 
of  power,  has  been  abandoned,  and  mere  ex- 
pediency has  taken  its  place.  The  attitude  of 
statesmen  and  officials  to  the  people  in  whose 
interests  they  are  supposed  to  hold  office,  is 
one  of  scarcely  veiled  antagonism,  only  tem- 
pered by  the  fear  of  unpleasant  consequences. 
In  the  State  services,  the  easy  suprem- 
acy of  patronage  over  merit,  and  vested  in- 
terest over  either,  has  kindled  widesprenl 
resentment,  leveled  not  less  at  the  inevita- 
ble result  than  at  the  personal  injustice 
involved. 

In  its  relations  with  labor,  the  State  is  hardly 
more  happy.  In  the  interim  report  of  the 
British  Commission  on  Industrial  Unrest,  the 
following  statement  occurs ; — 

"There  is  no  doubt  that  one  cause  of 
labor  unrest  is  that  workmen  have  come  to 
regard  the  promises  and  pledges  of  Parlia- 
ment and  Government  Departments  with 
suspicion  and  distrust." 
In  industry  itself,  the  perennial  struggle  be- 
tween the  forces  of  Capital  and  Labor,  on  ques- 


14  ECONOMIC  DEMOCRACY 

tions  of  wages  and  hours  of  work,  is  daily 
becoming  complicated  by  the  introduction  of 
fresh  issues  such  as  welfare,  status  and  disci- 
pline, and  it  is  universally  recognized  that  the 
periodic  strikes  which  convulse  one  trade  after 
another,  have  common  roots  far  deeper  than  the 
immediate  matter  of  contention.  In  the  very 
ranks  of  Trade  Unionism,  whose  organization 
has  become  centralized  in  opposition  to  concen- 
trated capital,  cleavage  is  evident  in  the  acri- 
monious squabbles  between  the  skilled  and  the 
unskilled,  the  rank  and  file  and  the  Trade  Union 
official. 

Although  the  diversion  of  the  forces  of  in- 
dustry to  munition  work  of,  in  the  economic 
sense,  an  unreproductive  character  has  created 
an  almost  unlimited  outlet  for  manufactures  of 
nearly  every  kind,  it  is  not  forgotten  that  before 
the  war  the  competition  for  markets  was  of  the 
fiercest  character  and  that  the  whole  world  was 
apparently  overproducing;  in  spite  of  the 
patent  contradiction  offered  by  the  existence  of 
a  large  element  of  the  population  continually  on 
the  verge  of  starvation  (Snowden,  **  Social- 
ism and  Syndicalism"),  and  a  great  majority 


ECONOMIC  DEMOCRACY  15 

whose  only  interest  in  great  groups  of  the 
so-called  luxury  trades  was  that  of  the  wage- 
earner. 

The  ever-rising  cost  of  living  has  brought 
home  to  large  numbers  of  the  salaried  classes 
problems  which  had  previously  affected  only 
the  wage-earner.  It  is  realized  that  ''labor- 
saving"  machinery  has  only  enabled  the 
worker  to  do  more  work;  and  that  the  ever- 
increasing  complexity  of  production,  paralleled 
by  the  rising  price  of  the  necessaries  of  life,  is  a 
sieve  through  which  out  and  for  ever  out  go  all 
ideas,  scruples  and  principles  which  would 
hamper  the  individual  in  the  scramble  for  an 
increasingly  precarious  existence. 

We  see,  then,  that  there  is  cause  for  dissatis- 
faction with  not  only  the  material  results  of  the 
economic  and  political  systems,  but  that  they 
result  in  an  environment  which  is  hostile  to 
moral  progress  and  intellectual  expansion ;  and 
it  will  be  noticed  in  this  enumeration  of  social 
evils,  which  is  only  so  wide  as  is  necessary  to 
suggest  principles,  that  emphasis  is  laid  on 
what  may  be  called  abstract  defects  and  mis- 
carriages of  justice,  as  well  as  on  the  material 


16  ECONOMIC  DEMOCRACY 

misery  and  distress  which  accompany  them. 
The  reason  for  this  is  that  the  twin  evil  (com- 
mon more  or  less  to  all  existing  organized  So- 
ciety) of  servility  is  poverty,  as  has  been 
clearly  recognized  by  all  shades  of  opinion 
amongst  the  exponents  of  Eevolutionary  So- 
cialism. Poverty  is  in  itself  a  transient  phe- 
nomenon, but  servility  (not  necessarily,  of 
course,  of  manner)  is  a  definite  component  of  a 
system  having  centralized  control  of  policy  as 
its  apex,  and  while  the  development  of  self- 
respect  is  universally  recognized  to  be  an  ante- 
cedent condition  to  any  real  improvement  in 
environment,  it  is  not  so  generally  understood 
that  a  world-wide  system  is  thereby  challenged. 
In  referring  the  existent  systems  to  the  stand- 
ard we  have  agreed  to  accept,  however,  it  seems 
clear  that  the  stimulation  of  independence  of 
thought  and  action  is  a  primary  requirement, 
and  to  the  extent  to  which  these  qualities  are 
repressed,  social  and  economic  conditions  stand 
condemned  as  undesirable. 

Now,  it  may  be  emphasized  that  a  centralized 
or  pyramid  form  of  control  may  be,  and  is  in 
certain  conditions,  the  ideal  organization  for 


ECONOMIC  DEMOCRACY  17 

the  attainment  of  one  specific  and  material  end. 
The  only  effective  force  by  which  any  objective 
can  be  attained  is  in  the  last  analysis  the  human 
will,  and  if  an  organization  of  this  character 
can  keep  the  will  of  all  its  component  members 
focused  on  the  objective  to  be  attained,  the 
collective  power  available  is  clearly  greater 
than  can  be  provided  by  any  other  form  of 
association.  For  this  reason  the  advantage 
accruing  from  the  use  of  it  for  the  attainment 
of  one  concrete  objective,  such  as,  let  us  say, 
the  coherent  design  of  a  National  railway  or 
electric  supply  system  (just  so  long  as  these 
objects  are  protected  from  use  as  instruments 
of  personal  and  economic  power),  is  quite  incon- 
trovertible ;  but  every  particle  of  available  evi- 
dence goes  to  show  that  it  is  totally  unsuitable 
as  a  system  of  administration  for  the  purposes 
of  governing  the  conditions  under  which  whole 
peoples  live  their  lives ;  that  it  is  in  opposition 
to  every  real  interest  of  the  individual  when  so 
used,  and  for  this  reason  it  is  vital  to  devise 
methods  by  which  technical  co-ordination  can 
be  combined  with  individual  freedom. 
To  crystallize  the  matter  into  a  paragraph, 


18  ECONOMIC  DEMOCRACY 

in  respect  of  any  undertaking,  centralization  is 
the  way  to  do  it,  but  is  neither  the  correct 
method  of  deciding  what  to  do  nor  the  question 
of  who  is  to  do  it. 


CHAPTER  III 

Danger  of  loose  thinking — SocialiBts  too  sweeping — Credit  side 
of  Capitalism — The  Servile  State — The  real  enemy — 
Nationalization  no  cure — Capitalism  and  Centralism — 
Discrediting  of  Jevonian  Economics — Definition  of 
Money — Modern  money  comes  from  credit  creations — 
Reaction  in  industry — Scientific  management — Piece- 
work systems  and  their  relation  to  money  values — 
"  Ca'canny  " — Financial  centralization  and  militarism. 

WE  are  thus  led  to  inquire  into  environ- 
ment with  a  view  to  the  identification,  if 
possible,  of  conditions  to  which  can  be  charged 
the  development  of  servility  on  the  one  hand, 
and  the  discouragement  of  possibly  more  desir- 
able characteristics  on  the  other,  and  in  this 
inquiry  it  is  necessary  to  avoid  the  real  danger 
of  mistaking  effects  for  causes ;  and,  further,  to 
beware  of  seeing  only  one  phenomenon  when  we 
are  really  confronted  with  several. 

For  instance,  that  from  the  misuse  of  the 
power  of  capital  many  of  the  more  glaring  de- 
fects of  society  proceed  is  certain,  but  in  claim- 
ing that  in  itself  the  private  administration  of 
industry  is  the  whole  source  of  these  evils,  the 

19 


20  ECONOMIC  DEMOCRACY 

Socialist  is  almost  certainly  claiming  too  much, 
confounding  the  symptom  with  the  disease,  and 
taking  no  account  of  certain  essential  facts.  It 
is  most  important  to  differentiate  in  this  mat- 
ter, between  private  enterprise  utilizing  capital, 
and  the  abuse  of  it. 

The  private  administration  of  capital  has  had 
a  credit  as  well  as  a  debit  side  to  its  account; 
without  private  enterprise  backed  by  capital, 
scientific  progress,  and  the  possibilities  of  ma- 
terial betterment  based  on  it,  would  never  have 
achieved  the  rapid  development  of  the  past  hun- 
dred years;  and  still  more  important  at  this 
time,  only  the  control  of  capital,  which  on  the 
one  hand  has  degraded  propaganda  into  one  of 
the  Black  Arts,  has,  on  the  other,  made  possible 
such  crusades  against  an  ill-informed  or  misled 
public  opinion  as,  for  instance,  the  anti- slavery 
campaign  of  the  early  nineteenth  century,  or 
the  parallel  activities  of  the  anti-sweating 
league  at  the  present  day.  The  very  agitation 
carried  on  against  capitalism  itself  would  be 
impossible  without  the  freedom  of  action 
givon  by  the  private  control  of  considerable 
funds. 


ECONOMIC  DEMOCRACY  21 

The  capitalistic  system  in  the  form  in  which 
We  know  it  has  served  its  purpose,  and  may  be 
replaced  with  advantage ;  but  in  any  social  sys- 
tem proposed,  the  first  necessity  is  to  provide 
some  bulwark  against  a  despotism  which  might 
exceed  that  of  the  Trust,  bad  as  the  latter  has 
become.  In  our  anxiety  to  make  a  world  safe 
for  democracy  it  is  a  matter  of  real  urgency 
that  we  do  not  tip  out  the  baby  with  the  bath 
water,  and,  by  discarding  too  soon  what  is 
clearly  an  agency  which  can  be  made  to  operate 
both  ways,  make  democracy  even  more  unsafe 
for  the  individual  than  it  is  at  present. 

The  danger  which  at  the  moment  threatens 
individual  liberty  far  more  than  any  extension 
of  individual  enterprise  is  the  Servile  State; 
the  erection  of  an  irresistible  and  impersonal  or- 
ganization through  which  the  ambition  of  able 
men,  animated  consciously  or  unconsciously  by 
the  lust  of  domination,  may  operate  to  the  en- 
slavement of  their  fellows.  Under  such  a  sys- 
tem the  ordinary  citizen  might,  and  probably 
would,  be  far  worse  off  than  under  private 
enterprise  freed  from  the  domination  of  finance 
and  regulated  in  the  light  of  modem  thought. 


22  ECONOMIC  DEMOCRACY 

The  consideration  of  any  return  to  isolated  in- 
dustrial undertakings  is  quite  academic,  since 
there  is  not  the  faintest  probability  of  its  oo- 
currence,  but  that  stage  of  development  had 
undoubtedly  certain  valuable  features  which  it 
would  be  well  to  preserve  and  revive.  The 
large  profit-making  limited  company  which  dis- 
tributes its  profits  over  a  wide  area  is  already 
rapidly  displacing  the  family  business,  and  as 
will  be  seen,  it  is  not  alone  in  the  profit-making 
aspect  of  its  activities  that  its  worst  features 
lie. 

In  attacking  capitalism,  collective  Socialism 
has  largely  failed  to  recognize  that  the  real 
enemy  is  the  will-to-power,  the  positive  comple- 
ment to  servility,  of  which  Prussianism,  with 
its  theories  of  the  supreme  state  and  the  unim- 
portance of  the  individual  (both  of  which  are 
the  absolute  negation  of  private  enterprise),  is 
only  the  fine  flower ;  and  that  nationalization  of 
all  the  means  of  livelihood,  without  the  pro- 
vision of  much  more  effective  safeguards  than 
have  so  far  been  publicly  evolved,  leaves  the  in- 
dividual without  any  appeal  from  its  only  pos- 
sible employer  and  so  substitutes  a  worse,  be- 


ECONOMIC  DEMOCRACY  23 

cause  more  powerful,  tyranny  for  that  which  it 
would  destroy. 

It  is  a  most  astonishing  fact  that  the  experi- 
ence of  hundreds  of  thousands  of  men  and 
women  in  such  departments  as  the  Post  Office, 
where  real  discontent  is  probably  more  general, 
and  the  material  and  psychological  justification 
for  it  more  obvious,  than  in  any  of  the  more 
modem  industrial  establishments,  has  not  been 
sufficient  to  impress  the  public  with  the  futility 
of  mere  nationalization.  This  is  not  in  any 
sense  a  disparagement  of  the  excellent  qualities 
of  large  numbers  of  Government  officials;  it  is 
merely  an  attempt  to  indicate  the  remarkable 
facility  with  which  well-intentioned  people  will 
allow  themselves  to  be  hypnotized  by  a  phrase. 
It  is  notorious  that  the  State  Socialists  of  Ger- 
many, commonly  known  as  the  Majority  Party, 
were  of  the  greatest  possible  assistance  to 
Junkerdom  in  carrying  out  its  plans  for  a 
Prussian  world  hegemony;  while  in  England 
the  bureaucrat  and  the  Fabian  have,  on  the 
whole,  not  failed  to  understand  each  other ;  and 
the  explanation  is  simply  that  both,  either  con- 
sciously or  unconsciously,  assume  that  there  is 


24  ECONOMIC  DEMOCRACY 

no  psychological  problem  involved  in  the  con- 
trol of  industry  just  as  the  Syndicalist  is,  with 
more  justification,  apt  to  stress  the  psychologi- 
cal to  the  exclusion  of  the  technical  aspect. 

Because  the  control  of  capital  has  given 
power,  the  effect  of  the  operation  of  the  will- 
to-power  has  been  to  accumulate  capital  in  a 
few  groups,  possibly  composed  of  large  num- 
bers of  shareholders,  but  frequently  directed  by 
one  man;  and  this  process  is  quite  clearly  a 
stage  in  the  transition  from  decentralized  to 
centralized  power.  This  centralization  of  the 
power  of  capital  and  credit  is  going  on  before 
our  eyes,  both  directly  in  the  form  of  money 
trusts  and  bank  amalgamations,  and  indirectly 
in  the  confederation  of  the  producing  industries 
representing  the  capital  power  of  machinery. 
It  has  its  counterpart  in  every  sphere  of  ac- 
tivity: the  coalescing  of  small  businesses  into 
larger,  of  shops  into  huge  stores,  of  villages 
into  towns,  of  nations  into  leagues,  and  in  every 
case  is  commended  to  the  reason  by  the  plea  of 
economic  necessity  and  efficiency.  But  behind 
this  lies  always  the  will-to-power,  which  oper- 
ates equally  through  politics,  finance  or  in- 


ECONOMIC  DEMOCRACY  25 

dustry,  and  always  towards  centralization.  If 
this  point  of  view  be  admitted,  it  seems  per- 
fectly clear  that  to  the  individual  it  will  make 
very  little  difference  what  name  is  given  to  cen- 
tralization. Nationalization  without  decentral- 
ized control  of  policy  will  quite  effectively  in- 
stal  the  trust  magnate  of  the  next  generation  in 
the  chair  of  the  bureaucrat,  with  the  added  ad- 
vantage to  him,  that  he  wiU  have  no  share- 
holders '  meeting. 

One  of  the  more  obvious  effects  of  the  con- 
centration of  credit-capital  in  a  few  hands, 
which  simply  means  the  centralization  of  direc- 
tive power,  is  its  contribution  to  the  illusion  of 
the  fiercely  competitive  nature  of  international 
trade.  Although  as  we  shall  see,  in  considering 
the  economics  of  the  increasing  employment  of 
machinery  for  productive  purposes,  this  phe- 
nomenon has  been  confounded  with  one  to 
which  it  is  only  indirectly  connected,  it  may  be 
convenient  at  this  time  to  point  out  one  method 
by  which  this  illusion  is  produced,  and  it  is 
probably  not  possible  to  do  so  in  better  words 
than  those  used  by  Mr.  J.  A.  Hobson  in  his 
** Democracy  After  the  War'': — 


26  ECONOMIC  DEMOCRACY 

**  Where  the  product  of  industry  and 
commerce  is  so  divided  that  wages  are  low 
while  profits,  interest,  and  rent  are  rela- 
tively high,  the  small  purchasing  power  of 
the  masses  sets  a  limit  on  the  home  market 
for  most  staple  commodities.  The  staple 
manufacturers,  therefore,  working  with 
modern  mechanical  methods,  that  contin- 
ually increase  the  pace  of  output,  are  in 
every  country  compelled  to  look  more  and 
more  to  export  trade,  and  to  hustle  and 
compete  for  markets  in  the  backward  coun- 
tries of  the  world.  .  .  .  Just  as  the  home 
market  was  restricted  by  a  distribution  of 
wealth  which  left  the  mass  of  people  with 
inadequate  power  to  purchase  and  con- 
sume, while  the  minority  who  had  the  pur- 
chasing power  either  wanted  to  use  it  in 
other  ways  or  to  save  it  and  apply  it  to  an 
increased  production  .which  still  further 
congested  the  home  markets,  so  likewise 
with  the  world  markets.  .  .  .  Closely 
linked  with  this  practical  limitation  of  the 
expansion  of  markets  for  goods  is  the  limi- 
tation of  profitable  fields  of  investment. 


ECONOMIC  DEMOCRACY  27 

The  limitation  of  home  markets  implies  a 
corresponding  limitation  in  the  investment 
of  fresh  capital  in  the  trades  supplying 
these  markets.'* 

Because  capitalism  per  se  is  largely  the  in- 
strument through  which  the  will-to-power 
operates  in  the  economic  sphere,  some  examina- 
tion of  its  methods  is  necessary.  The  accumu- 
lation of  financial  wealth  through  the  making 
of  profit  is  merely  one  of  the  uses  or  abuses  of 
money,  but  it  is  in  this  sense  that  capitalism  is 
associated  to  a  very  great  extent  in  the  popular 
mind  with  the  processes  of  manufacture,  pro- 
duction and  distribution,  and  it  is  in  this  sense 
that  the  word  is  here  employed.  The  capital- 
istic system  is  based  fundamentally  on  the 
financial  perversion  of  the  law  of  supply  and 
demand,  which  involves  a  claim  that  there 
exists  an  intrinsic  relation  between  need  or  re- 
quirement, and  legitimate  price  or  exchange 
value;  a  statement  in  Jevonian  Political  Econ- 
omy which  is  becoming  increasingly  dis- 
credited, and  is  negatived  in  the  limitation  of 
monopoly  values,  by  common  consent,  in  re- 


28  ECONOMIC  DEMOCRACY 

spect  of  public  utility  companies,  such  as  light- 
ing, water  and  transportation  undertakings. 

Proceeding  from  an  economic  system  based 
on  this  assumed  relation,  however,  the  capital- 
istic producer  only  parts  with  his  product  for  a 
sum  in  excess  of  that  representing  its  cost  to 
him,  receiving  payment  through  the  agency  of 
money  in  its  various  forms  of  cash  and  financial 
credit,  which,  so  far  as  they  are  convertible, 
have  been  defined  as  any  medium  which  has 
reached  such  a  degree  of  acceptability  that  no 
matter  what  it  is  made  of,  and  no  matter  why 
people  want  it,  no  one  will  refuse  it  in  exchange 
for  his  product.  (Professor  Walker,  **  Money, 
Trade  and  Industry,"  p.  6.) 

So  long  as  this  definition  holds  good,  it  is 
obvious  that  the  possession  of  money,  or  finan- 
cial credit  convertible  into  money,  establishes 
an  absolute  lien  on  the  services  of  others  in 
direct  proportion  to  the  fraction  of  the  whole 
stock  controlled,  and  further  that  the  whole 
stock  of  financial  wealth,  inclusive  of  credit,  in 
the  world  should,  by  the  definition,  be  sufficient 
to  balance  the  aggregate  book  price  of  the 
world's  material  assets  and  prospective  pro- 


ECONOMIC  DEMOCRACY  29 

duction;  and  generally  it  is  assumed  that  the 
banks  regulate  the  figures  of  wealth  by  the 
creation  of  credits  broadly  representing  the 
mobilization  value  of  these  assets  either  in  esse 
or  in  posse,  such  value  being  for  financial  pur- 
poses the  transfer  or  selling  price  and  bearing 
no  relation  to  the  usage  value  of  the  article  so 
appraised. 

But  for  reasons  which  will  be  evident  in  con- 
sidering the  costing  of  production  at  a  later 
•stage  of  our  inquiry,  the  book  value  of  the 
world's  stocks  is  always  greater  than  the  ap- 
parent financial  ability  to  liquidate  them,  be- 
cause these  book  values  already  include  mobil- 
ized credits ;  the  creation  of  subsidiary  financial 
media,  in  the  form  of  further  bank  credits,  be- 
comes necessary,  and  results  in  the  piling  up 
of  a  system  on  figures  which  the  accountant 
calls  capital,  but  which  are  in  fact  merely  a 
function  of  prices.  The  effect  of  this  is,  of 
course,  to  decrease  progressively  the  purchas- 
ing power  of  money,  or,  in  other  words,  to  con- 
centrate the  lien  on  the  services  of  others,  which 
money  gives,  in  the  hands  of  those  whose  rate 
of  increase  is  most  rapid.    Intrinsic  improve- 


30  ECONOMIC  DEMOCRACY 

ments  in  manufacturing  methods  operate  to  de- 
lay this  concentration  in  respect  of  industry, 
but  the  process  is  logically  inevitable,  and,  as 
we  see,  is  proceeding  with  ever-increasing 
rapidity;  and  we  may  fairly  conclude  that  the 
profit-making  system  as  a  whole,  and  as  now 
operated,  is  inherently  centralizing  in  char- 
acter. 

With  this  concentration  of  financial  power 
and  consequent  control,  however,  there  is  pro- 
ceeding in  industry  another  development,  ap- 
parently contradictory  in  its  results,  but  of 
the  greatest  importance  in  the  consideration 
of  the  subject  as  a  whole.  During  the  period 
of  transition  between  individual  ownership  and 
company  or  trust  management,  and  under  the 
stress  of  competition  for  markets,  it  became  of 
vital  importance  to  cut  down  the  selling  price 
of  commodities,  not  so  much  intrinsically  as  in 
comparison  with  competitors;  and  as  a  means 
to  this  end,  standardization  and  quantity-pro- 
duction in  large  factories  are  of  the  utmost  im- 
portance, carrying  with  them  specialization  of 
processes,  the  substitution,  wherever  possible, 
of  automatic  and  semi-automatic  machinery  for 


ECONOMIC  DEMOCRACY  31 

skilled  workmanship,  and  the  incorporation  of 
the  worker  into  a  machine-like  system  of  which 
every  part  is  expected  to  function  as  systemati- 
cally as  a  detail  of  the  machine  which  he  may 
operate.  The  objective  has,  to  a  considerable 
extent,  been  attained — the  scientific  manage- 
ment systems  in  factories  (an  outstanding  in- 
stance of  this  policy),  based  on  the  researches 
of  efficiency  engineers  such  as  Mr.  F.  W.  Taylor 
and  Mr.  Frank  Gilbreth,  have  resulted  in  a 
rate  of  production  per  unit  of  labor,  hundreds 
or  even  thousands  per  cent,  higher  than  existed 
before  their  introduction. 

As  a  bait  for  the  worker  these  methods  have 
commonly  been  accompanied  by  systems  of 
payment-by-results,  such  as  the  premium-bonus 
system  in  its  various  forms  as  adapted  by  Hal- 
sey.  Rowan,  Weir,  etc.,  round  which  has  raged 
fierce  controversy  since  in  the  very  nature  of 
things,  being  based  on  the  consideration  of 
profit,  they  were  unable  to  take  into  account  the 
operation  of  broad  economic  principles.  It  is 
no  part  of  the  argument  with  which  we  are  con- 
cerned to  discuss  such  systems  in  detail,  but  any 
unprejudiced  and  sufficiently  technical  consid- 


82  ECONOMIC  DEMOCRACY 

eration  of  them  will  carry  the  conviction  that 
while  the  immediate  effect  of  their  introduction 
was  undoubtedly  to  raise  earnings  and  so  ap- 
parently to  delay  the  concentration  of  wealth, 
it  was  correctly  recognized  by  the  worker  that 
his  real  wage  tended  to  bear  much  the  same 
ratio,  or  even  to  fall,  in  comparison  with  the 
cost  of  living,  since  the  purchasing  power  of 
money  in  terms  of  food,  clothes,  and  housing 
fell  faster  than  his  wages  rose. 

As  the  mechanical  efficiency  of  production 
rose,  therefore,  discontent  and  industrial  strife 
became  accentuated,  and  an  unstable  equi- 
librium was  only  maintained  by  the  operation 
of  such  factors  as  have  become  known  under 
the  names  of  ** ca'canny,"  restriction  of  out- 
put, etc.,  and  before  the  war  the  operation  of 
piece-work  systems  in  large  industrial  engi- 
neering works  almost  invariably  resulted  in 
the  establishment  of  a  local  ratio  between  time 
rates  and  piece-work  earnings,  generally  rang- 
ing between  1.25  and  1.5  to  1.  It  is  not  neces- 
sary to  discuss  the  ethics  of  such  an  arrange- 
ment; it  is  merely  necessary  to  note  that  the 
settled  policy  of  Labor,  acting  presumably  on 


ECONOMIC  DEMOCRACY  33 

the  best  advice  it  could  get  in  its  own  interests, 
was  to  exercise  a  control  over  production  hy 
fixing  its  own  standard  of  output  irrespective  of 
time.  The  situation  created  by  the  demand  for 
munitions  of  all  kinds  during  the  war  has,  of 
course,  profoundly  modified  this  attitude,  with 
the  result  that  a  temporary  very  large  increase 
in  real  earnings  undoubtedly  took  place  in  1915 
and  1916,  taking  the  form  of  a  rapid  distribu- 
tion of  stored  commodities ;  but  it  is  quite  ques- 
tionable whether  this  level  is  even  approxi- 
mately maintained,^  and  with  the  cessation  of 
the  wholesale  sabotage  of  war,  it  will  unques- 
tionably faU  as  economic  distribution  through 
the  wages  system  becomes  ineffective;  apart 
from  actual  scarcity. 

Quite  apart,  therefore,  from  all  questions  of. 
payment,  there  has  grown  up  a  spirit  of  revolt 
against  a  life  spent  in  the  performance  of  one 
mechanical  operation  devoid  of  interest,  re- 
quiring little  skill,  and  having  few  prospects  of 
advancement  other  than  by  the  problematical 
acquisition  of  sufficient  money  to  escape  from  it. 


iThis  was  written  in  1918;  and  events  have  demonstrated 
its  correctness. 


34  ECONOMIC  DEMOCRACY 

The  very  eflBiciency  with  which  factory  opera- 
tions have  been  sectionalized  has  resulted  in  a 
complete  divorcement  between  the  worker  and 
the  finished  product,  which  is  in  itself  conducive 
to  the  feeling  that  he  is  part  of  a  machine  in 
the  final  output  of  which  he  is  not  interested. 
His  foreman  and  departmental  heads  are,  from 
the  largeness  of  the  undertakings,  almost  inevi- 
tably out  of  human  touch  with  him,  while  all  the 
well-known  phenomena  of  bureaucratic  methods 
contribute  to  maintain  a  constant  state  of  irrita- 
tion and  dissatisfaction ;  and  in  all  these  things 
is  the  nucleus  of  a  centrifugal  movement  of  for- 
midable force.  Nor  is  this  feature  confined  to 
industrial  life.  The  connection  between  mili- 
tarism and  capitalism  as  vehicles  for  the  ex- 
pression of  the  will-to-power  has  frequently 
been  pointed  out.  By  the  device  of  universal 
liability  to  military  service  a  general  threat  has 
been  made  operative  which  would  appear,  ul- 
tima ratio  regis,  to  set  the  seal  on  the  ability 
of  authority  to  dictate  the  terms  on  which  the 
existence  of  the  individual  can  continue.  But 
it  is  doubtful  whether  there  ever  was  a  time 
when  this  threat  was  held  more  lightly,  and 


ECONOMIC  DEMOCRACY  36 

the  disregard  of  consequences  so  widespread. 
It  is  not  suggested  that  conscription  either  mili- 
tary or  industrial  is  regarded  with  compla- 
cency; the  exact  opposite  is,  of  course,  the 
truth.  But  just  for  the  reason  that  the  whole 
conception  of  a  militarist  world  is  instinctively 
recognized  as  an  anachronism,  so,  just  to  that 
extent,  is  the  determination  to  defeat  at  any 
cost  schemes  involving  compulsion  strength- 
ened in  the  minds  of  a  population  normally 
acquiescent. 


CHAPTER  IV 

Personality  not  the  ruling  factor  in  centralism — Over-rides 
personality — Lessons  of  History — The  cult  of  Mediaeval- 
ism — Its  fallacy — Industrial  organization — The  argument 
for  super-production — Its  critical  importance — Staking 
out  the  ground  of  argument. 

WE  are,  therefore,  faced  with  an  apparent 
dilemma,  a  world-wide  movement  to- 
wards centralized  control,  backed  by  strong 
arguments  as  to  the  increased  efficiency  and 
consequent  economic  necessity  of  organization 
of  this  character  (and  these  arguments  receive 
support  from  quarters  as  widely  separated  as, 
say.  Lord  Milner  and  Mr.  Sidney  Webb),  and, 
on  the  other  hand,  a  deepening  distrust  of  such 
measures  bred  by  personal  experience  and  ob- 
servation of  their  effect  on  the  individual.  A 
powerful  minority  of  the  community,  deter- 
mined to  maintain  its  position  relative  to  the 
majority,  assures  the  world  that  there  is  no 
alternative  between  a  pyramid  of  power  based 
on  toil  of  ever-increasing  monotony,  and  some 
form  of  famine  and  disaster;  while  a  growing 

36 


ECONOMIC  DEMOCRACY  87 

and  ever  more  dissatisfied  majority  strives  to 
throw  off  the  hypnotic  influence  of  training  and 
to  grapple  with  the  fallacy  which  it  feels  must 
exist  somewhere. 

Now,  let  it  be  said  at  once  that  there  is  no 
evasion  of  this  dilenmaa  possible  by  the  intro- 
duction of  questions  of  personality — a  bad  sys- 
tem is  still  a  bad  system  no  matter  what 
changes  are  made  in  personnel.  The  power  of 
personality  is  susceptible  of  the  same  definition 
as  any  other  form  of  power,  it  is  the  rate  of 
doing  work ;  and  the  rate  at  which  a  given  per- 
sonality can  change  an  organization  depends 
on  two  things :  the  magnitude  of  the  change  de- 
sired, and  the  size  of  the  organization.  As  it  is 
hoped  to  make  clear,  the  effect  of  a  single  or- 
ganization of  this  pyramidal  character  applied 
to  the  complex  purpose  of  civilization  produces 
a  definite  type  of  individual,  of  which  the  Prus- 
sian is  one  instance.  Pyramidal  organization 
is  a  structure  designed  to  concentrate  power, 
and  success  in  such  an  organization  sooner  or 
later  becomes  a  question  of  the  subordination  of 
all  other  considerations  to  its  attainment  and 
retention.    For  this  reason  the  very  qualities 


38  ECONOMIC  DEMOCRACY 

which  make  for  personal  success  in  central  con- 
trol are  those  which  make  it  most  unlikely  that 
success  and  the  attainment  of  a  position  of 
authority  will  result  in  any  strong  effort  to 
change  the  operations  of  the  organization  in 
any  external  interest,  and  the  progress  to 
power  of  an  individual  under  such  conditions 
must  result  either  in  a  complete  acceptance  of 
the  situation  as  he  finds  it,  or  a  conscious  or 
unconscious  sycophancy  quite  deadly  to  the 
preservation  of  any  originality  of  thought  and 
action. 

It  cannot  be  too  heavily  stressed  at  this  time 
that  similar  forms  of  organization,  no  matter 
how  dissimilar  their  name,  favor  the  emergence 
of  like  characteristics,  quite  irrespective  of  the 
ideals  of  the  founders,  and  it  is  to  the  principles 
underlying  the  design  of  the  structure,  and  not 
to  its  name  or  the  personalities  originally 
operating  it,  that  we  may  look  for  information 
on  its  eventual  performance. 

In  considering  the  objectionable  features 
which  have  arisen  from  modern  industrial  and 
political  systems  in  the  light  of  this  centralizing 
tendency,  it  is  instructive  to  turn  for  a  moment 


ECONOMIC  DEMOCRACY  39 

to  the  examination  of  the  differences  which 
have  developed  in  them  with  respect  to  those 
they  have  displaced,  and  without  covering 
afresh  the  ground  which  has  been  sufficiently 
well  traversed  by  the  exponents  of  National 
Guilds,  Syndicalism  and  other  systems  of  in- 
dustrial self-government,  it  may  be  well  to 
point  out  that  the  industrial  revolution  of  the 
late  eighteenth  and  early  nineteenth  centuries 
was  largely  marked  in  principle  by  the  separa- 
tion of  the  workman  from  the  ownership  of  his 
tools  and  the  control  of  his  business  policy. 

All  craft  was  handicraft;  the  equipment  of 
a  tradesman  was  of  the  simplest;  the  selling 
price  of  the  product  was  practically  material 
cost  plus  direct  labor  cost ;  direct  labor  cost  was 
indistinguishable  from  profit,  and  practically 
the  whole  of  it  was  available  for  the  purchase  of 
further  material,  and  the  product  of  other 
men's  industry. 

So  far  as  our  knowledge  goes,  and  the  theory 
of  industry  would  confirm  such  an  assumption, 
there  was  within  the  craft  guilds  no  involuntary 
poverty  or  unemployment  at  all  comparable  to 
that  with  which  we  are  too  familiar,  and,  at  any 


40  ECONOMIC  DEMOCRACY 

rate,  within  the  circle  of  their  influence  the 
standard  of  material  comfort  rose  directly  in 
proportion  to  the  total  production,  while  at  the 
same  time  the  craftsman  maintained  a  pride  in 
his  work  and  considerable  independence. 

With  the  advent  of  machinery  came  the  in- 
tervention of  the  financier  into  industry;  will- 
ing to  provide  the  able  craftsman  with  the 
means  to  extend  the  exercise  of  his  skill  on 
payment  for  his  services.  The  development 
from  this  stage,  through  the  small  workshop  run 
on  borrowed  money  by  the  enterprising  man 
who  both  worked  himself  and  directed  the  work 
of  others,  to  the  larger  factory  in  which  the 
function  of  the  craftsman  ceased  to  be  exercised 
by  the  employer,  who  retained  only  the  direc- 
tion and  management ;  to  the  large  limited  lia- 
bility company  or  Trust,  in  which  the  crafts- 
man, the  management,  and  the  direction  of 
policy,  became  still  further  separated,  has  been 
logical  and  rapid,  and  this  development  carries 
with  it  changes  of  a  fundamental  character. 

Behind  all  effort  lies  the  active  or  passive 
acquiescence  of  the  human  will,  and  this  can 
only  be  obtained  by  the  provision  of  an  objec- 


ECONOMIC  DEMOCRACY  41 

tive.  By  the  separation  of  large  classes  into 
mere  agents  of  a  function,  it  has  been  possible 
to  obtain  the  more  or  less  complete  co-operation 
of  large  numbers  of  individuals  in  aims  of 
which  they  were  completely  ignornnt,  and  of 
which,  had  they  been  able  to  appreciate  them  in 
their  entirety,  they  would  have  completely  dis- 
approved, while  at  the  same  time  Education  and 
Ecclesiasticism  have  combined  to  foster  the 
idea,  that  so  long  as  the  orders  of  a  superior 
were  obeyed,  no  responsibility  rested  on  the 
individual. 

It  is  not,  of  course,  suggested  that  commer- 
cial policy  has  been  deliberately  and  uniformly 
dictated  by  unworthy  motives — far  from  it; 
nor  is  it  unlikely  that  had  the  processes  of  pro- 
duction and  distribution  been  separated  from 
any  control  over  individual  activity  along  other 
lines,  its  development  might  have  been  in  the 
best  interests  of  the  community ;  but  since  it  has 
been  accompanied  by  a  growing  subjection  of 
the  individual  to  the  machine  of  industrialism, 
it  is  quite  unquestionable  that  the  whole  process 
of  centralizing  power  and  policy  and  alleged  re- 
sponsibility in  the  brains  of  a  few  men  whose 


42  ECONOMIC  DEMOCRACY 

deliberations  are  not  open  to  discussion ;  whose 
interests,  largely  financial,  are  quite  clearly  in 
many  respects  opposed  to  those  of  the  individ- 
uals they  control,  and  whose  critics  can  be  vic- 
timized; is  without  a  single  redeeming  feature, 
and  is  rendered  inherently  vicious  by  the  con- 
ditions which  operate  during  the  selective 
process.  When  it  is  further  considered  that 
these  positions  of  power  fall  to  men  whose  very 
habit  of  mind,  however  kindly  and  broad  in 
view  it  may  be  and  often  is  in  other  directions, 
must  quite  inevitably  force  them  to  consider  the 
individual  as  mere  material  for  a  policy — 
cannon-fodder  whether  of  politics  or  industry — 
the  gravity  of  the  issue  should  be  apparent. 

Along  with  this  development  has  gone  a 
parallel  change  in  the  status  of  the  individual. 
The  apprentice,  the  journeyman  and  the  master 
were  all  of  one  social  class;  the  apprentice  or 
journeyman  dined  at  his  master's  table  and 
married  his  own  or  some  other  master's  daugh- 
ter; the  standard  of  life  therefore,  without,  of 
course,  being  identical,  was  comparable  as  be- 
tween various  grades.  The  implication  of  this 
was  considerable — it  involved  a  common  stand- 


ECONOMIC  DEMOCRACY  43 

ard  to  which  everyday  difficulties  could  be  re- 
ferred. A  consideration  of  these  facts,  and  a 
comparison  of  the  conditions  produced  by  them 
with  those  existing  in  our  industrial  districts 
in  more  recent  years,  has  led  reformers  of  the 
type  of  William  Morris  and  John  Ruskin  to 
idealize  this  period  and  to  place  to  the  debit  of 
machinery  and  quantity-production  all  the 
miseries  and  ugliness  visible  in  the  Midlands 
and  the  manufacturing  North  of  England.  This 
attitude  seems  mistaken,  and  here  again  we  are 
met  by  a  confusion  between  cause  and  effect: 
there  is  absolutely  no  virtue  in  taking  ten  hours 
to  produce  by  hand  a  necessary  which  a  machine 
will  produce  in  ten  seconds,  thereby  releasing  a 
human  being  to  that  extent  for  other  aims,  but 
it  is  essential  that  the  individual  should  be  re- 
leased; that  freedom  for  other  pursuits  than 
the  mere  maintenance  of  life  should  thereby  be 
achieved. 

How,  then,  are  we  to  deal  with  this  dilemma? 
It  cannot  seriously  be  contended  that  the  ad- 
vancement gained  as  a  result  of  the  application 
of  material  science  to  the  requirements  of  so- 
ciety should  be  abandoned,  and  that  men  should 


44  ECONOMIC  DEMOCRACY 

abjure  the  use  of  anything  more  complicated 
than  a  hammer  and  chisel  or  a  spinning  wheel. 
But  while  progress  in  the  replacement  of  man- 
ual effort  by  machinery  seems  both  natural  and 
beneficial,  "it  is  equally  clear  that  the  spiritual 
and  intellectual  revolt  against  the  conditions 
which  have  grown  up  alongside  this  material 
progress  is  fundamental  and  widespread,  and 
will  not  be  satisfied  by  any  mere  betterment 
movement.  The  whole  policy  of  Governments 
and  industrialists  alike  in  respect  of  this  con- 
flict of  interest  has  been  one  of  grudging  com- 
promise, partly  as  the  result  of  the  natural 
tendency  of  humanity  to  **laissez  faire'* 
methods  and  partly  no  doubt  from  a  settled 
conviction  that  nothing  but  compromise  was 
possible;  that  the  existing  order  is  based  on 
natural  law,  and  is  not  amenable  to  any  radical 
modification,  and  that  all  critics  are  either 
cranks  and  dreamers,  or  else  are  solely  actuated 
by  a  desire  for  the  sweets  of  office.  It  is  most 
important  to  recognize  that  there  are  two  dis- 
tinct problems  involved  in  this  dilemma:  one 
technical,  the  other  psychological,  and  it  is  just 
because  the  psychological  aspect  of  industry 


ECONOMIC  DEMOCRACY  45 

has  been  confused  with  and  subordinated  to  the 
technical  aspect  that  we  are  confronted  with 
so  grave  a  situation  at  this  time.  There  is  little 
reason  to  doubt  that  we  are  rapidly  attaining 
command  of  the  means  for  the  solution  of  any 
reasonable  requirement  of  a  purely  technical 
nature,  and  it  may  be  well  therefore  to  consider 
briefly  the  usual  methods  which  the  modem  in- 
dustrial system  has  developed  to  deal  with  the 
organization  of  large  numbers  of  individuals  to 
the  end  that  their  combined  effort  may  result  in 
commercial  success. 

Very  broadly  the  main  difference  lies  between 
what  may  be  defined  as  the  military  and  the 
functional  systems  of  control,  or  some  combina- 
tion of  the  two,  and  these  involve  an  interesting 
difference  of  conception. 

As  we  have  seen,  the  development  of  indus- 
trial activity  has  been  very  largely  a  practical 
application  of  the  economic  proposition  in  re- 
gard to  the  division  of  labor;  the  ** military" 
organization  conceives  a  large  business  or  a 
Government  Department  as  an  aggregation  of 
human  units  to  carry  out  on  a  large  scale  that 
which  one  immensely  able  and  versatile  man 


46  ECONOMIC  DEMOCRACY 

could  do  on  a  small  scale,  and,  broadly  consid- 
ered, the  perfect  organization  of  this  character 
would  be  derived  by  dissecting  the  various  at- 
tributes of  the  perfect  one-man  business,  mak- 
ing each  of  them  a  Department,  and  staffing 
them  with  men  who  in  the  aggregate  repre- 
sented nothing  but  an  expansion  of  that  at- 
tribute. Fortunately,  the  perfect  organization 
of  this  character  has  yet  to  appear,  but  the 
effect  of  the  endeavor  to  achieve  it  has  quite 
definitely  left  its  mark  on  civilization — it  is 
easy  to  distinguish  the  soldier  and  the  civil 
servant,  or  even  the  infantryman  and  the  bom- 
bardier, and  the  development  due  to  the  un- 
balanced exercise  of  one  set  only,  of  perhaps 
many  abilities  resident  in  the  human  unit,  is  a 
very  definite  factor  in  the  existing  discontent 
and  one  which,  if  perpetuated,  could  only  be 
increased  by  wider  education. 

A  little  consideration  will  at  once  suggest 
that  this  type  of  organization  carried  out  to  its 
furthest  limits  is  pyramid  control  in  its  sim- 
plest form,  and  it  is  clear  that  successive  grades 
or  ranks  decreasing  regularly  in  the  number  of 
units   composing   each   grade,   until   supreme 


ECONOMIC  DEMOCRACY  47 

power  and  composite  function  is  reached  and 
concentrated  at  the  apex,  are  definitely  char- 
acteristic of  it. 

The  next  step  is  to  split  the  functions  of  the 
higher  ranks  so  that  each  unit  therein  becomes 
the  head  of  a  separate  little  pyramid,  each  of 
which  as  a  whole  furnishes  the  unit  composing 
a  larger  pyramid ;  in  every  case,  however,  even- 
tually concentralizing  power  and  responsibil- 
ity in  one  man,  representing  the  power  of 
finance  and  of  control  over  the  necessaries  of 
life. 

Several  points  are  to  be  noticed  in  the  condi- 
tions produced  by  such  an  arrangement: 
Firstly,  there  is  fundamental  inequality  of 
opportunity.  The  more  any  organization, 
whether  of  society  as  a  whole,  or  any  of  the 
various  aspects  of  it,  approaches  this  form  the 
more  certain  is  it  that  there  cannot  possibly  be 
any  relation  between  merit  and  reward — it  is, 
for  instance,  absurd  to  assume  that  there  is 
only  one  possible  head,  for  each  railway  com- 
pany. Government  Department,  or  great  indus- 
trial undertaking.  There  is  no  doubt  what- 
ever that  the  intrigue  which  is  a  commonplace 


48  ECONOMIC  DEMOCRACY 

in  such  undertakings  has  its  roots  almost  en- 
tirely in  this  cause,  and  contributes  in  no  small 
degree  to  their  notorious  inefficiency. 

Another  objection  which  becomes  increas- 
ingly important  as  the  concentration  proceeds 
is  the  divorce  between  power  and  detail  knowl- 
edge. This  difficulty  is  recognized  in  the  ap- 
pointment of  official  and  unofficial  intelligence 
departments  which,  of  course,  are  in  themselves 
the  source  of  further  abuses. 

Having  these  points  to  some  extent  in  mind, 
American  industry  has  developed  what  is  most 
unquestionably  a  very  important  modification 
of  principle — that  of  functional  control  in  place 
of  individual  control ;  that  is  to  say,  the  individ- 
ual is  only  controlled  from  one  source  in  regard 
to  one  function — say  time-keeping.  In  respect 
of  such  matters  as  technical  methods  he  deals 
with  an  entirely  different  authority,  and  with 
still  another  in  respect  of  pay. 

The  real  objection  to  this  is  the  effect  on  the 
source  of  specialized  authority  of  so  narrow  a 
function  as  is  demanded  by  much  so-called 
scientific  management,  but  there  is  very  little 
doubt  that  the  underlying  idea  does  contain  the 


ECONOMIC  DEMOCRACY  49 

germ  of  an  industrial  system  which  would  be  in 
the  highest  degree  eflScient  if  its  psychological 
difficulties  could  be  removed,  and  it  is  signifi- 
cant that  this  form  of  organization  produces 
its  own  type  of  personality. 

It  will  be  seen,  therefore,  that  we  have,  in 
the  industrial  field,  a  double  problem  to  solve : 
while  retaining  the  benefits  of  mechanism  for 
productive  purposes,  to  obtain  effective  distri- 
bution of  the  results  and  to  restore  personal 
initiative. 

The  proposition  which  is  being  urged  from 
orthodox  capitalistic  quarters  as  a  means  of 
dealing  with  this  situation  is  a  little  ingenuous. 
It  consists  of  an  intensification  policy  by  which, 
in  some  mysterious  way,  all  the  unpleasant  fea- 
tures, by  being  exaggerated,  are  to  disappear, 
and  it  is  usually  summed  up  at  the  moment  in 
the  phrase,  **We  must  produce  more.'*  A  fair 
statement  of  this  demand  for  unlimited  and  in- 
tensified manufacturing  would  no  doubt  be 
something  after  this  fashion : — 

1.  We  must  pay  for  the  war  and  for  better- 
ment schemes. 

2.  This  means  high  taxes. 


60  ECONOMIC  DEMOCRACY 

3.  Taxes  must  come  from  profits  and  earn- 
ings, which  are  parts  of  one  whole. 

4.  High  earnings,  high  profits,  and  low  labor 
costs,  and  low  selling  and  competitive  costs,  can 
only  be  combined  if  increased  output  is  ob- 
tained. 

5.  High  earnings  will  mean  wider  markets. 

Now  this  is  a  very  specious  argument;  a 
large  number  of  people,  whose  instincts  warn 
them  that  there  is  a  fallacy  somewhere,  have 
not  felt  themselves  able  to  offer  any  effective 
criticism  of  it,  since  some  practical  knowledge 
of  technique  is  involved.  The  labor  attitude 
has  either  been  a  simple  non-possumus,  or  a 
restatement  of  the  evils  of  capitalistic  profit- 
making,  together  with  sufficiently  pungent  in- 
quiry into  the  qualifications  of  the  holders  of 
the  major  portion  of  the  securities  representing 
Government  indebtedness,  and  their  title  to 
rank  as  the  winners  of  the  war,  and  the  chief 
beneficiaries  of  the  peace.  All  this  is  quite  to 
the  point,  but  it  is  not  even  the  chief  economic 
objection  to  such  a  policy. 

First  of  all,  let  it  be  admitted  that  a  consider- 


ECONOMIC  DEMOCRACY  61 

able  amount  of  manufacturing  will  have  to  be 
done,  firstly,  to  reinstate  the  devastated  areas, 
and  afterwards  to  meet  the  accumulated  de- 
mand, and  these  together  will  provide  an  outlet 
for  a  very  large  quantity  of  manufactured 
goods.  These  goods  will  not,  of  course,  be 
furnished  for  nothing,  and  the  money  to  pay 
for  them  will  in  the  main  be  supplied  by  loans, 
which  to  begin  with  clearly  mean  more  taxes  for 
some  one,  where  the  work  done  is  on  public  ac- 
count. But,  says  the  super-producer,  this 
money  will  be  distributed  in  wages,  salaries  and 
profits,  which  will  enable  the  whole  population, 
at  any  rate  of  this  country,  where  we  propose 
to  do  our  manufacturing  so  long  as  labor  and 
other  conditions  are  favorable,  to  buy  more 
goods,  or,  conversely,  save  more  money,  and 
eventually  enjoy  more  leisure  and  freedom. 

Let  us  give  to  this  statement  the  attention 
it  deserves,  because  on  it  hangs  the  fate  of  a 
whole  economic  system.  If  it  is  true  as  it 
stands,  then  the  whole  system  which  stands  be- 
hind it,  the  fight  for  markets,  the  cartels,  trusts, 
and  combines,  and  the  other  machinery  of  com- 
petitive trade,  are  justified  at  any  rate  by  na- 


52  ECONOMIC  DEMOCRACY 

tional  self-interest.  In  order  then  to  make  this 
analysis  it  is  unavoidable  that  we  should  enter 
into  some  detail  with  regard  to  the  accountancy 
of  manufacturing;  not  forgetting  that  the  un- 
equal distribution  of  wealth  is  an  initial  re- 
striction on  the  free  sale  of  commodities,  and 
that  in  consequence  what  we  are  aiming  at,  in 
order  to  meet  the  final  contention  of  the  argu- 
ment, is  not  an  expansion  of  figures,  but  an 
equalization  of  real  purchasing  power. 

Now,  purchasing  power  is  the  amount  of 
goods  of  the  description  desired  which  can  be 
bought  with  the  sum  of  money  available,  and  it 
is  clearly  a  function  of  price.  It  is  a  widely 
spread  delusion  that  price  is  simply  a  question 
of  supply  and  demand,  whereas,  of  course,  the 
upper  limit  of  price  only  is  thus  governed,  the 
lower  limit,  which  under  free  competition  would 
be  the  ruling  limit,  being  fixed  by  cost  plus  the 
minimum  profit  which  will  provide  a  financial 
inducement  to  produce.  It  is  important  to  bear 
this  in  mind,  because  it  is  frequently  assumed 
that  a  mere  glut  of  goods  will  bring  down  prices 
quite  irrespective  of  any  intrinsic  economy  in- 
volved in  large  scale  production.    Unless  these 


ECONOMIC  DEMOCRACY  63 

goods  are  all  absorbed,  the  result  may  be 
exactly  opposite,  since  deterioration  must  go 
into  succeeding  costs.  Cost  is  the  accwnidation 
of  past  spendings  over  an  indefinite  period, 
whereas  cash  price  requires  a  purchasing  power 
effective  at  the  moment  of  purchase. 

Where  competition  is  restricted  by  Trusts, 
price  is  cost  plus  whatever  profit  the  Trust 
considers  it  politic  to  charge. 


CHAPTER  V 

Factory  cost'  the  heart  of  the  problem — Profit  sharing — ^The 
rate  of  distribution  of  money — The  rate  of  increase  of 
prices — Example — Where  the  real  purchasing  power  lies 
— Loan-credit  and  cash-credit — ^The  leak  in  the  dollar — 
Wealth  and  "  weal  "-being — Profiteering  not  the  prime 
objection  to  existing  system — Summary  of  analysis  of 
Production  Economics. 

100KED  at  from  this  standpoint  it  is  fairly 
-^  clear  that  the  kernel  of  the  problem  is 
factory  cost,  since  it  is  quite  possible  to  con- 
ceive of  a  limited  company  in  which  the  shares 
were  all  held  by  the  employees,  either  equally  or 
in  varying  proportions,  according  to  their 
grade,  and  the  selling  costs  were  internal — that 
is  to  say,  all  advertising  was  done  by  the  firm 
itself,  and  the  cost  of  its  salesmen,  etc.,  was 
either  negligible,  or  confined  to  their  salaries. 
We  should  then  have  the  complete  profit-shar- 
ing enterprise  in  its  ultimate  aspect,  and  the 
argument  against  Capitalism  in  its  usual  form 
would  not  arise. 

Sucl^  an  undertaking  would,  let  us  assume, 
make  a  complicated  engineering  product,  re- 

64 


ECONOMIC  DEMOCRACY  66 

quiring  expensive  plant  and  machinery,  and 
would  absorb  considerable  quantities  of  power 
and  light,  lubricants,  etc.,  much  of  which  would 
be  wasted ;  and  would  inevitably  produce  a  cer- 
tain amount  of  scrap  the  value  of  which  would 
be  less  than  the  material  in  the  form  in  which 
it  entered  the  works.  The  machinery  would 
wear  out,  and  would  have  to  be  replaced  and 
maintained,  and  generally  it  is  clear  that  for 
each  unit  of  production  there  would  be  three 
main  divisions  of  factory  cost,  the  ''staple" 
raw  material,  the  wages  and  salaries  and  a  sum 
representing  a  proportion  of  the  cost  of  upkeep 
on  the  whole  of  the  plant,  which  might  easily 
equal  200  per  cent,  of  the  wages  and  salaries. 
As  the  plant  became  more  automatic  by  im- 
provements in  process,  the  ratio  which  these 
plant  costs  bore  to  the  cost  of  labor  and  salaries 
would  increase.  The  factory  cost  of  the  total 
production,  therefore,  would  be  the  addition  of 
these  three  items:  staple  material,  labor  and 
salaries,  and  plant  cost,  and  with  the  addition 
of  selling  charges  and  profit,  this  would  be  the 
selling  price. 
As  a  result  of  the  operations  of  the  under- 


56  ECONOMIC  DEMOCRACY 

taking  the  wealth  of  the  world  would  thus  be 
apparently  increased  by  the  difference  between 
the  value  of  all  the  material  entering  the  fac- 
tory, and  the  total  sum  represented  by  the  sell- 
ing price  of  the  product.  But  it  is  clear  that 
the  total  amount  distributed  in  wages,  salaries 
and  profit  or  dividends,  would  be  less  by  a  con- 
siderable sum  (representing  purchases  on  fac- 
tory account)  than  the  total  selling  price  of  the 
product,  and  if  this  is  true  in  one  factory  it 
must  be  true  in  all.  Consequently,  the  rate  at 
which  money  is  liberated  by  manufacturing 
processes  of  this  nature  is  clearly  less  than  the 
rate  at  which  the  total  selling  price  of  the  prod- 
uct increases.  This  difference  is  due  to  the  fact 
that  while  the  final  price  to  the  consumer  of  any 
manufactured  article  is  steadily  growing  with 
the  time  required  for  manufacture,  during  the 
same  time  the  money  distributed  by  the  manu- 
facturing process  is  being  returned  to  the  capi- 
talist through  purchases  for  immediate  con- 
sumption. 

A  concrete  example  will  make  this  clear.  A 
steel  bolt  and  nut  weighing  ten  pounds  might 
require  in  the  blank  about  eleven  and  a  half 


ECONOMIC  DEMOCRACY  67 

pounds  of  material  representing,  say,  85  cents. 
The  net  selling  price  of  the  scrap  recovered 
would  probably  be  about  2  cents.  The  wages 
value  of  the  total  man-hours  expended  on  the 
conversion  from  the  blank  to  the  finished  nut 
and  bolt  might  be  $1.25,  and  the  average  plant 
charge  150  per  cent,  on  the  direct  time  charge, 
i.e.,  $1.87.  The  factory  cost  would,  therefore, 
be  $3.95,  of  which  $1.87,  or  just  under  one-half, 
would  be  plant  charge.  Of  this  plant  charge 
probably  75  per  cent.,  or  about  $1.40,  is  repre- 
sented by  the  sum  of  items  which  are  either 
afterwards  wiped  off  for  depreciation  and  con- 
sequently not  distributed  at  all  at  that  time, 
or  are  distributed  in  payments  outside  the  or- 
ganization, which  payments  clearly  must  be 
subsequent  to  any  valuation  of  the  articles  for 
which  they  are  paid,  and  so  do  not  affect  the 
argument.  Without  proceeding  to  add  selling 
charges  and  profit  it  must  be  clear  that  a  charge 
of  $3.95  on  the  world's  purchasing  power  has 
been  created,  of  which  only  $1.70  is  distributed 
in  respect  of  the  specific  article  under  con- 
sideration, and  that  if  the  effective  demand 
exists    at    all    in    a    form    suitable    for    the 


68  ECONOMIC  DEMOCRACY 

liquidation  of  this  charge,  it  must  reside  in 
the  banks. 

But  we  know  that  the  total  increase  in  the 
personal  cash  accounts  in  the  banks  in  normal 
times  is  under  3  per  cent,  of  the  wages,  salaries 
and  dividends  distributed,  consequently  it  is  not 
to  these  accounts  that  we  must  look  for  effec- 
tive demand.  There  are  two  sources  remain- 
ing: loan-credit,  that  is  to  say,  purchasing 
power  created  by  the  banks  on  principles  which 
are  directed  solely  to  the  production  of  a  posi- 
tive financial  result;  and  foreign  or  export  de- 
mand. Now  loan-credit  is  never  available  to 
the  consumer  as  such,  because  consumption  as 
such  has  no  commercial  value.  In  consequence 
loan-credit  has  become  the  great  stimulus  either 
to  manufacture  or  to  any  financial  or  commer- 
cial operation  which  will  result  in  a  profit,  that 
is  to  say,  an  inflation  of  figures. 

An  additional  factor  also  comes  into  play  at 
this  point.  All  large  scale  business  is  settled  on 
a  credit  basis.  In  the  case  of  commodities  in 
general  retail  demand,  the  price  tends  to  rise 
above  the  cost  limit,  because  the  sums  dis- 
tributed in  advance  of  the  completion  of  large 


ECONOMIC  DEMOCRACY  59 

works  become  effective  in  the  retail  market, 
while  the  large  works,  when  completed,  are  paid 
for  hj  an  expansion  of  credit.  This  process  in- 
volves a  continuous  inflation  of  currency,  a  rise 
in  prices,  and  a  consequent  dilution  in  purchas- 
ing power. 

The  reason  that  the  decrease  in  the  con- 
sumer's purchasing  power  has  not  been  so 
great  as  would  be  suggested  by  these  considera- 
tions is,  of  course,  largely  due  to  intrinsic 
cheapening  of  processes  which  would,  if  not  de- 
feated by  this  dilution  of  the  consumer's  pur- 
chasing power,  have  brought  down  prices  faster 
than  they  have  risen. 

There  are  thus  two  processes  at  work:  an 
intrinsic  cheapening  of  the  product  by  better 
methods,  and  an  artificial  decrease  in  purchas- 
ing power  due  to  what  is  in  effect  the  charging 
of  the  cost  of  all  waste  and  inefficiency  to  the 
consumer.  And  it  is  clear  that  under  this  sys- 
tem the  greater  the  volume  of  production  the 
larger  will  be  the  absolute  value  of  the  waste 
which  the  consumer  has  to  pay  for,  whether  he 
will  or  no,  because  as  the  bank  credits  are 
created  at  the  instance  of  the  manufacturer  and 


60  ECONOMIC  DEMOCRACY 

repaid  out  of  prices  each  article  produced 
dilutes,  by  the  ratio  of  its  book  price  to  all  the 
credits  outstanding,  the  absolute  purchasing 
power  of  the  money  held  by  any  individual. 

These  facts  are  quite  unaffected  by  the  per- 
fectly sound  argument  that  increased  produc- 
tion means  decreased  cost  per  piece,  since  it  is 
the  total  production  price  which  has  to  be 
liquidated. 

Already  there  is  not  very  much  left  of  the 
argument  for  the  innate  desirability  of  un- 
limited, unspecified  and  intensified  manufactur- 
ing under  the  existing  economic  system,  but 
more  trouble  yet  is  ahead  of  it.  While  the  ratio 
of  plant  charges  to  total  wages  and  salaries  cost 
is  less  than  1 : 1  over  the  whole  range  of  com- 
modities, a  general  rise  in  direct  rates  of  pay 
may  mean  a  rise  (but  not  a  proportionate  rise) 
in  the  purchasing  power  of  those  who  obtain 
their  remuneration  in  this  way.  But  when 
by  the  increased  application  of  mechanical 
methods  the  average  overhead  charge  passes 
the  ratio  of  one  to  one  (which  it  rapidly  will, 
and  should  do  on  this  basis  of  calculation)  every 
general  increase  in  rates  of  pay  of  "direct" 


ECONOMIC  DEMOCRACY  61 

labor  may  mean  an  actnal  decrease  in  real  pay, 
because  the  consumer  is  only  interested  in  ulti- 
mate products  and  overhead  charges  do  not 
represent  ultimate  products  in  existence. 

The  whole  argument  which  represents  a 
manufactured  article,  no  matter  what  its  de- 
scription and  utility,  as  an  access  of  wealth  to 
the  country  and  to  every  one  concerned  so  long 
as  by  any  method  it  can  be  sold  and  wages  dis- 
tributed in  respect  of  it,  will,  therefore,  be  seen 
to  be  a  dangerous  fallacy  based  on  an  entirely 
wrong  conception,  which  is  epitomized  in  the 
use  of  the  word  ''production,"  and  fostered  by 
ignorance  of  financial  processes.  Manufactur- 
ing of  any  kind  whatever,  even  agriculture  in  a 
limited  sense,  is  the  conversion  of  one  thing  into 
another,  which  process  is  only  advantageous  to 
the  extent  that  it  subserves  a  definite  require- 
ment of  human  evolution.  In  any  case,  it 
shares  with  all  other  conversions  the  character- 
istic of  having  only  a  fractional  efiiciency,  and 
the  waste  of  effort  involved,  although  being  con- 
tinually reduced  by  improvements  of  method, 
still  can  only  be  paid  for  in  one  way,  by  effort 
on  the  part  of  somebody. 


62  ECONOMIC  DEMOCRACY 

If  this  effort  is  useful  effort — ** useful* '  in  the 
sense  that  a  definite,  healthy  and  sane  human 
requirement  is  served — the  wealth  and  stand- 
ard of  living  of  the  community  may  thereby  be 
enhanced.  If  the  effort  is  aimless  or  destruc- 
tive, the  money  attached  to  it  does  not  alter  the 
result. 

The  financial  process  just  discussed  therefore 
clearly  attaches  a  concrete  money  value  to  an 
abstract  quality  not  proven,  and  as  this  money 
value  must  be  represented  somewhere  by 
equivalent  purchasing  power  in  the  broadest 
sense,  misdirected  effort  which  appears  in  cost 
forms  a  continuous  and  increasing  diluent  to 
the  purchasing  value  of  effort  in  general. 

A  careful  consideration  of  these  factors  will 
lead  to  the  conclusion  that  loan-credit  is  the 
form  of  effective  demand  most  suitable  for 
stimulating  semi-manufactures,  plant,  inter- 
mediate products,  etc.,  and  that  **  cash  "-credit 
is  required  for  ultimate  products  for  real  per- 
sonal consumption.  We  have  already  seen  that 
the  cash-credits  provided  by  the  whole  of  the 
money  distributed  by  the  industrial  system,  so 
far  as  it  concerns  the  wage-earner,  are  only  suf- 


ECONOMIC  DEMOCRACY  63 

ficient  to  provide  a  small  surplus  over  the  cost 
of  the  present  standard  of  living,  and  that  only 
by  conditions  of  employment  which  the  workers 
repudiate,  and  rightly  repudiate. 

The  core  of  this  problem  is  the  fact  that 
money,  which  is  distributed  m  respect  of  ar- 
ticles which  do  not  come  into  the  buying  range 
of  the  persons  to  whom  the  money  is  distrib- 
uted, is  not  real  money — it  is  simply  inflation  of 
currency  so  far  as  those  persons  are  concerned. 
The  public  does  not  buy  machinery,  industrial 
buildings,  etc.,  for  personal  consumption  at  all. 
But  it  pays  the  price  of  them  without  acquiring 
control,  since  they  form  an  overhead  cost  added 
to  the  price  of  ultimate  products.  Hence  it  will 
be  seen  that  the  machinery  of  remuneration 
must  be  modified  profoundly,  since  the  sum  of 
the  wages,  salaries  and  dividends,  distributed  in 
respect  of  the  world's  production  will  buy  an 
ever-decreasing  fraction  of  it,  and  can  never 
control  it. 

It  is  one  of  the  most  curious  phenomena  of 
the  existing  economic  system  that  a  large  por- 
tion of  the  world's  energy,  both  intellectual  and 
physical,  is  directed  to  the  artificial  stimulation 


64  ECONOMIC  DEMOCRACY 

of  the  desire  for  luxuries  by  advertisement  and 
otherwise,  in  order  that  the  remainder  may  be 
absorbed  in  what  is  frequently  toilsome,  dis- 
agreeable and  brutalizing  work ;  to  the  end  that 
a  device  for  the  distribution  of  purchasing 
power  may  be  maintained  in  existence.  The 
irony  of  the  situation  is  the  greater  since  the 
perfecting  of  the  organization  to  carry  on  this 
vicious  circle  carries  with  it  as  we  have  just 
seen  a  complete  negation  of  all  real  progress. 

The  common  factor  of  the  whole  situation  lies 
in  the  simple  facts  that  at  any  given  period  the 
material  requirements  of  the  individual  are 
quite  definitely  limited — ^that  any  attempt  to 
expand  them  artificially  is  an  interference  with 
the  plain  trend  of  evolution,  which  is  to  subordi- 
nate material  to  mental  and  psychological 
necessity;  and  that  the  impulse  behind  un- 
bridled industrialism  is  not  progressive  but  re- 
actionary because  its  objective  is  an  obsolete 
financial  control  which  forms  one  of  the  most 
effective  instruments  of  the  will-to-power, 
whereas  the  correct  objectives  of  industry  are 
two-fold:  the  removal  of  material  limitations 
and  the  satisfaction  of  the  creative  impulse. 


ECONOMIC  DEMOCRACY  65 

It  is  for  this  reason  that  while,  as  we  see,  the 
effect  of  the  concrete  sum  distributed  as  profit 
is  over-rated  in  the  attacks  made  on  the  Capi- 
talistic system,  and  is  of  small  and  diminishing 
importance  as  compared  with  the  delusive  ac- 
counting system  which  accompanies  it,  and 
which  acts  to  reduce  consistently  the  purchas- 
ing power  of  effort,  it  is,  nevertheless,  of  prime 
importance  as  furnishing  the  immediate  "in- 
ducement to  produce,"  which  is  a  false  induce- 
ment in  that  it  claims  as  '* wealth"  what  may 
just  as  probably  be  waste. 

If  by  wealth  we  mean  the  original  meaning 
attached  to  the  word:  i.e.,  ** well-being,"  the 
value  in  well-being  to  be  attached  to  production 
depends  entirely  on  its  use  for  the  promotion 
of  well-being  (unless  a  case  is  made  out  for  the 
moral  value  of  factory  life),  and  bears  no  rela- 
tion whatever  to  the  value  obtained  by  cost 
accounting. 

Further,  if  the  interaction  between  produc- 
tion for  profit  and  the  creation  of  credit  by  the 
finance  and  banking  houses  is  understood,  it 
will  be  seen  that  the  root  of  the  evil  accruing 
from  the  system  is  in  the  constant  filching  of 


66  ECONOMIC  DEMOCRACY 

purchasing  power  from  the  individual  in  favor 
of  the  financier,  rather  than  in  the  mere  profit 
itself. 

Having  in  view  the  importance  of  the  issues 
involved,  it  may  be  desirable  to  summarize  the 
conclusions  to  be  derived  from  a  study  of  the 
methods  by  which  the  price  of  production  is 
based  on  cost  under  the  existing  economic  ar- 
rangements.   They  are  as  follows : — 

1.  Price  cannot  normally  be  less  than  cost 
plus  profit. 

2.  Cost  includes  all  expenditure  on  product. 

3.  Therefore,  cost  involves  all  expenditure 
on  consumption  (food,  clothes,  housing,  etc.), 
paid  for  out  of  wages,  salary  or  dividends,  as 
well  as  all  expenditure  on  factory  account,  also 
representing  previous  consumption. 

4.  Since  it  includes  this  expenditure,  the 
portion  of  the  cost  represented  by  this  expendi- 
ture has  already  been  paid  by  the  recipients  of 
wages,  salaries  and  dividends. 

5.  These  represent  the  community;  there- 
fore, the  only  distribution  of  real  purchasing 
power  in  respect  of  production  over  a  unit 
period  of  time  is  the  surplus  wages,  salaries 


ECONOMIC  DEMOCRACY  67 

and  dividends  available  after  all  subsistence, 
expenditure  and  cost  of  materials  consumed  has 
been  deducted.  The  surplus  production,  how- 
ever, includes  all  this  expenditure  in  cost,  and, 
consequently,  in  price. 

6.  The  only  effective  demand  of  the  con- 
sumer, therefore,  is  a  few  per  cent,  of  the  price 
value  of  commodities,  and  is  cash-credit.  The 
remainder  of  the  Home  effective  demand  is  loan- 
credit,  which  is  controlled  by  the  banker,  the 
jBnancier,  and  the  industrialist,  in  the  interest 
of  production  with  a  financial  objective,  not  in 
the  interest  of  the  ultimate  consumer. 

It  will  be  necessary  to  grasp  the  significance 
of  these  considerations,  which  can  hardly  be 
over-rated  in  its  effect  on  the  break-up  of  the 
existing  economic  system,  in  order  to  appre- 
ciate the  result  of  a  change  in  the  control  of 
credit  and  the  method  of  price  fixing,  with 
which  it  is  proposed  to  deal  at  a  later  stage. 


CHAPTER  VI 

Fallacious  arguments  based  on  income-returns — Importance 
of  loan-credit — How  it  diflFers  from  pay  and  wages — Why 
starvation  may  exist  amidst  plenty — Economic  sabotage 
— Examples — The  mirage  of  finance — Why  it  can  never 
deliver  the  goods. 

IT  will  be  readily  understood  that  the  diffi- 
culties which  are  seen  to  be  inherent  in  the 
policy  of  super-production  are  only  an  accen- 
tuation of  those  with  which  we  were  only  too 
familiar  prior  to  the  outbreak  of  war,  and  it 
may  be  contended  and,  in  fact,  it  frequently  is 
stated,  that  even  with  the  unemployment  statis- 
tics at  their  minimum  point  and  the  Nation  at 
its  maximum  activity  in  Industry,  there  is  still 
not  enough  product  to  go  round.  Recently,  for 
instance,  Professor  Bowley  has  estimated  that 
the  total  British  income  in  excess  of  $800  per 
head  per  annum  is  only  $1,250,000,000,  which 
would  mean,  if  distributed  to  10,000,000  heads 
of  families,  $125  per  annum  per  family,  assum- 
ing that  this  distribution  did  not  reduce  the 
production  of  wealth. 

68 


ECONOMIC  DEMOCRACY  69 

The  figures  themselves  have  been  criticized; 
but,  in  any  case,  the  whole  argument  is  com- 
pletely fallacious,  because  it  takes  no  account 
whatever  of  loan-credit,  which  is  by  far  the 
most  important  factor  in  the  distribution  of 
production,  as  we  have  already  seen.  What  it 
does  show  is  that  the  purchasing  power  of  ef- 
fort is  quite  insignificant  in  comparison  with  its 
productive  power. 

But  it  may  be  advisable  to  glance  at  some  of 
the  proximate  causes  operating  to  reduce  the 
return  for  effort;  and  to  realize  the  origin  of 
most  of  the  specific  instances,  it  must  be  borne 
in  mind  that  the  existing  econonmic  system  dis- 
tributes goods  and  services  through  the  same 
agency  which  induces  goods  and  services,  i.e., 
payment  for  work  in  progress.  In  other  words, 
if  production  stops,  distribution  stops,  and,  as 
a  consequence,  a  clear  incentive  exists  to  pro- 
duce useless  or  superfluous  articles,  in  order 
that  useful  commodities  already  existing  may 
be  distributed. 

This  perfectly  simple  reason  is  the  explana- 
tion of  the  increasing  necessity  of  what  has 
come  to  be  called  economic  sabotage ;  the  colos- 


70  ECONOMIC  DEMOCRACY 

sal  waste  of  effort  which  goes  on  in  every  walk 
of  life  quite  unobserved  by  the  majority  of 
people  because  they  are  so  familiar  with  it;  a 
waste  which  yet  so  over-taxed  the  ingenuity  of 
society  to  extend  it,  that  the  climax  of  war  only 
occurred  in  the  moment  when  a  culminating  ex- 
hibition of  organized  sabotage  was  necessary  to 
preserve  the  system  from  spontaneous  com- 
bustion. 

The  simplest  form  of  this  process  is  that  of 
** making  work";  the  elaboration  of  every 
action  in  life  so  as  to  involve  the  maximum 
quantity  and  the  minimum  efficiency  in  human 
effort.  The  much-maligned  household  plumber, 
who  evolves  an  elaborate  organization  and  eti- 
quette, probably  requiring  two  assistants,  and 
half  a  day,  in  order  to  **wipe"  a  damaged 
water  pipe,  which  could,  by  methods  with  which 
he  is  perfect  familiar,  be  satisfactorily  repaired 
by  a  boy  in  one-third  the  time;  the  machinist 
insisting  on  a  lengthy  apprenticeship  to  an  un- 
skilled process  of  industry,  such  as  the  opera- 
tion of  an  automatic  machine  tool,  are  simple 
instances  of  this.  A  little  higher  up  the  scale  of 
complexity  comes  the  manufacturer  who  pro- 


ECONOMIC  DEMOCRACY  71 

duces  a  new  model  of  his  particular  specialty, 
with  the  object,  express  or  subconscious,  of 
rendering  the  old  model  obsolete  before  it  is 
worn  out.  We  then  begin  to  touch  the  immense 
regions  of  artificial  demand  created  by  adver- 
tisement; a  demand,  in  many  cases,  as  purely 
hypnotic  in  origin  as  the  request  of  the  mes- 
merized subject  for  a  draught  of  kerosene.  All 
these  are  instances  which  could  be  multiplied 
and  elaborated  to  any  extent  necessary  to  prove 
the  point. 

In  another  class  comes  the  stupendous  waste 
of  effort  involved  in  the  intricacies  of  finance 
and  book-keeping;  much  of  which,  although 
necessary  to  the  competitive  system,  is  quite 
useless  in  increasing  the  amenities  of  life ;  there 
is  the  burden  of  armaments  and  the  waste  of 
materials  and  equipment  involved  in  them  even 
in  peace  time;  the  ever-growing  bureaucracy 
largely  concerned  in  elaborating  safeguards  for 
a  radically  defective  social  system ;  and,  finally, 
but  by  no  means  least,  the  cumulative  export  of 
the  product  of  labor,  largely  and  increasingly 
paid  for  by  the  raw  material  which  forms  the 
vehicle  for  the  export  of  further  labor. 


72  ECONOMIC  DEMOCRACY 

All  these,  and  many  other  forms  of  avoidable 
waste,  take  their  rise  in  the  obsession  of  wealth 
defined  in  terms  of  money ;  an  obsession  which 
even  the  steady  fall  in  the  purchasing  power 
of  the  unit  of  currency  seems  powerless  to 
dispel;  which  obscures  the  whole  object  and 
meaning  of  scientific  progress,  and  places  the 
worker  and  the  honest  man  in  a  permanently 
disadvantageous  position  in  comparison  with 
the  financier  and  the  rogue.  It  is  probable  that 
the  device  of  money  is  a  necessary  device  in  our 
present  civilization;  but  the  establishment  of  a 
stable  ratio  between  the  use  value  of  effort  and 
its  money  value  is  a  problem  which  demands  a 
very  early  solution,  and  must  clearly  result  in 
the  abolition  of  any  incentive  to  the  capitaliza- 
tion of  any  form  of  waste. 

The  tawdry  ''ornament,"  the  jerry-built 
house,  the  slow  and  uncomfortable  train  serv- 
ice, the  unwholesome  sweetmeat,  are  the  direct 
and  logical  result  of  an  economic  system  which 
rewards  variety,  quite  irrespective  of  quality, 
and  proclaims  in  the  clearest  possible  manner 
that  it  is  much  better  to  "do'*  your  neighbor 
than  to  do  sound  and  lasting  work. 


ECONOMIC  DEMOCRACY  73 

The  capitalistic  wage  system  based  on  the 
current  methods  of  finance,  so  far  from  offering 
maximum  distribution,  is  decreasingly  capable 
of  meeting  any  requirement  of  society  fully. 
Its  very  existence  depends  on  a  constant  in- 
crease in  the  variety  or  product,  the  stimulation 
of  desire,  and  in  keeping  the  articles  desired  in 
short  supply. 


CHAPTER  VII 

The  final  struggle  approaching — The  issue — Inadequacy  of 
commodity-reward  for  service — Social  symptoms — Busi- 
ness system  not  to  blame — Real  and  effective  demand — 
Productive  system  technically  adequate — Decentralized 
control — ^The  Shop  Steward  system — A  means,  not  an 
end — A  labor  fallacy. 

IF  the  preceding  endeavor  to  marshal  into 
some  sort  of  coherent  pattern  the  facts  of 
the  general  economic  and  social  situation,  as  it 
exists  at  present,  has  been  to  any  extent  suc- 
cessful, it  will  be  evident  that  the  real  antago- 
nism which  is  at  the  root  of  the  upheaval  with 
which  we  are  faced  is  one  which  appears  under 
different  forms  in  every  aspect  of  human  life. 
It  is  the  agelong  struggle  between  freedom  and 
authority,  between  external  compulsion  and  in- 
ternal initiative,  in  which  all  the  command  of 
resources,  information,  religious  dogma,  edu- 
cational system,  political  opportunity  and  even, 
apparently,  economic  necessity,  is  ranged  on  the 
side  of  authority;  an  ultimate  authority  which 
is  now  chiefly  exercised  through  finance.  This 
antagonism  does,  however,  appear  at  the  pres- 

74 


ECONOMIC  DEMOCRACY  75 

ent  time  to  have  reached  a  stage  in  which  a 
definite  victory  for  one  side  or  the  other  is 
inevitable — it  seems  perfectly  certain  that 
either  a  pyramidal  organization,  having  at  its 
apex  supreme  power,  and  at  its  base  complete 
subjection,  will  crystallize  out  of  the  centraliz- 
ing process  which  is  evident  in  the  realms  of 
finance  and  industry,  equally  with  that  of  poli- 
tics, or  else  a  more  complete  decentralization 
of  initiative  than  this  civilization  has  ever 
known,  will  be  substituted  for  external  author- 
ity. The  issue  transcends  in  importance  all 
others :  the  development  of  the  human  race  will 
be  radically  different  as  it  is  decided  one  way  or 
another;  but  as  far  as  it  is  possible  to  judge,  the 
general  advantage  of  the  individual  will  lie  with 
the  retention  of  a  measure  of  co-ordination  in 
all  mechanical  organization,  combined  with  the 
evolution  of  progressively  decentralized  initia- 
tive, largely  by  the  displacement  of  the  power 
of  centralized  finance. 

The  implication  of  this  is  a  challenge  (which 
will  become  more  definite  as  time  goes  on)  to 
extant  authority,  as  to  its  right  to  adjudicate  on 
the  absolute  value,  expressed  in  terms  of  com- 


76  ECONOMIC  DEMOCRACY 

modities,  of  various  forms  of  activity.  Even 
now,  the  practical  difficulty  of  estimating  the 
relation  between  material  reward  and  individ- 
ual effort  is  becoming  almost  insuperable,  even 
in  the  cases  where  an  honest  effort  is  made  to 
arrive  at  some  solution.  The  various  move- 
ments for  the  grant  of  a  minimum  living  wage, 
the  demand  for  the  recognition  of  the  ' '  right  to 
work'*  {i.e.,  to  draw  pay),  are  all  symptoms  of 
the  breakdown  of  the  financial  *4aw'*  of  supply 
and  demand  in  its  application  to  economic 
problems. 

Still  another  significant  feature  of  the  inade- 
quacy of  the  economic  structure  is  the  increase 
of  voluntary  unpaid  effort  and  the  large  amount 
of  energy  devoted  to  games.  There  is  abso- 
lutely no  concrete  difference  between  work  and 
play  unless  it  be  in  favor  of  the  former — no  one 
would  contend  that  it  is  inherently  more  inter- 
esting or  pleasurable  to  endeavor  to  place  a 
small  ball  in  an  inadequate  hole  with  inappro- 
priate instruments,  than  to  assist  in  the  con- 
struction of  a  Quebec  Bridge,  or  the  harnessing 
of  Niagara.  But  for  one  object  men  will  travel 
long  distances  at  their  own  expense,  while  for 


ECONOMIC  DEMOCRACY  77 

the  other  they  require  payment  and  consider- 
able incentive  to  remain  at  work. 

The  whole  difference  is,  of  course,  psycho- 
logical ;  in  the  one  case  there  is  absolute  freedom 
of  choice,  not  of  conditions,  but  as  to  whether 
those  conditions  are  acceptable;  there  is  some 
voice  in  control,  and  there  is  an  avoidance  of 
monotony  by  the  comparatively  short  period  of 
the  game,  followed  by  occupation  of  an  entirely 
different  order.  But  the  efficiency  of  the  per- 
formance, as  compared  with  the  efficiency  of 
the  average  factory  worker,  is  simply  incom- 
parable— any  factory  which  could  induce  for  six 
months  the  united  and  enthusiastic  concentra- 
tion of,  say,  an  amateur  football  team,  would 
produce  quite  astonishing  results. 

Now,  it  may  be  emphasized  here  at  once,  that 
there  is  absolutely  no  future  for  inefficiency  as 
a  cult;  the  whole  promise  of  a  brighter,  prob- 
ably a  very  bright,  future  for  the  world,  lies  in 
doing  the  best  possible  things  in  the  best  pos- 
sible way.  In  industrial  affairs,  the  principle 
of  the  maximum  efficiency  of  effort  per  unit  of 
time  is  so  patently  unassailable,  that  its  enun- 
ciation would  hardly  be  necessary,  but  that  the 


78  ECONOMIC  DEMOCRACY 

proposition  carries  with  it  a  very  different  con- 
ception of  efficiency  than  the  narrow  ''busi- 
ness" meaning  commonly  attached  to  the  word, 
and  in  consequence  it  is  the  fashion  amongst 
the  less  progressive  elements  of  society  to  at- 
tack any  demand  for  improved  conditions  as 
simply  an  attempt  to  substitute  sloth  and  in- 
capacity for  energy  and  capability.  While, 
therefore,  a  readjustment  of  system  and,  above 
all,  a  complete  reconsideration  of  objective  is 
necessary,  it  is  probable  that  the  basis  of  such 
changes  must  he  economic,  with  political  and 
financial  systems  auxiliary  rather  than  defini- 
tive, and  it  is  certain  that  a  revision  of  eco- 
nomic policy,  to  be  stable,  must  result  in  higher 
economic  efficiency;  even  though  the  very  aim 
of  that  higher  efficiency  is  to  reduce  economic 
problems  to  a  very  subordinate  position.  And 
the  higher  psychological  efficiency  of  voluntary 
effort  is  clearly  a  step  to  this  end. 

We  have  just  seen  that  merely  increased  pro- 
duction under  existing  conditions  will  not 
achieve  any  economic  stability,  because  there 
are  at  least  two  quite  irreconcilable  criteria 
governing  the  scope  of  the  operations  proposed. 


ECONOMIC  DEMOCRACY  79 

There  is,  on  the  one  hand,  the  adjustment  of 
manufacturing  of  all  sorts  to  the  opportunity 
of  sale  (not  by  any  means  always  profitable 
sale) ;  and  this  is  a  purely  artificial,  and  yet  all- 
powerful,  consideration  under  present  financial 
systems,  and  constitutes  the  effective  demand. 

And  there  is,  on  the  other  hand,  the  growing 
real  demand,  first  for  food,  clothing  and  shelter, 
and  then  for  participation  in  the  wider  life 
which  modern  progress  has  made  possible,  such 
demand  being  quite  irrespective  of  capacity  to 
pay  in  money.  And  the  reconciliation  of  these 
two  interests  means  the  defeat  of  the  will-to- 
power  by  the  will-to-freedom,  and  in  this  recon- 
ciliation is  involved  a  modification  of  economic 
distribution. 

Now,  if  there  is  any  sanity  left  in  the  world 
at  all,  it  should  be  obvious  that  the  real  demand 
is  the  proper  objective  of  production,  and  that 
it  must  be  met  from  the  bottom  upwards,  that  is 
to  say,  there  must  be  first  a  production  of  neces- 
saries sufficient  to  meet  universal  require- 
ments ;  and,  secondly,  an  economic  system  must 
be  devised  to  insure  their  practically  automatic 
and  universal  distribution;  this  having  been 


80  ECONOMIC  DEMOCRACY 

achieved  it  may  be  followed  to  whatever  extent 
may  prove  desirable  by  the  manufacture  of 
articles  having  a  more  limited  range  of  useful- 
ness. All  financial  questions  are  quite  beside 
the  point;  if  finance  cannot  meet  this  simple 
proposition  then  finance  fails,  and  will  be  re- 
placed. It  has  been  estimated  that  two  hours 
per  week  of  the  time  of  every  fit  adult  between 
the  ages  of  18  and  45  would  provide  for  a  uni- 
formly high  standard  of  physical  welfare  under 
existing  conditions,  and  without  endorsing  the 
exact  figures,  it  is  perfectly  certain  that  dis- 
tribution, and  not  manufacture,  is  the  real  eco- 
nomic problem,  and  is  at  present  quite  intoler- 
ably unsatisfactory.  There  is  no  need  to  as- 
sume that  the  whole  machinery  of  business  as 
we  know  it  must  be  scrapped ;  in  fact,  the  ma- 
chinery of  business,  as  machinery,  is  highly  ef- 
ficient ;  but  it  must  undoubtedly  be  adjusted  so 
that  no  selfish  desire  for  domination  can  make 
it  possible  for  any  interest  to  hold  up  distribu- 
tion on  purely  artificial  grounds.  Since  the 
analysis  of  existing  conditions  which  we  have 
undertaken,  shows  that  any  centralized  admin- 
istrative organization  is  certain  to  be  captured 


ECONOMIC  DEMOCRACY  81 

by  some  interest  antagonistic  to  the  individual, 
it  seems  evident  that  it  is  in  the  direction  of 
decentralization  of  control  that  we  must  look 
for  such  alteration  in  the  social  structure  as 
would  be  self -protective  against  capture  for  in- 
terested purposes. 

As  we  have  already  seen,  alongside  the  con- 
centration of  political  and  industrial  power  a 
powerful  decentralizing  force  is  already  begin- 
ning to  show  itself  in  various  forms.  In  con- 
sidering the  manifestation  of  this  force  it  will 
be  observed  that  at  the  moment  it  is  seek- 
ing expression  through  organization — in  new 
forms,  but  for  the  present  operating  with  old 
sources  of  energy,  chiefly  negative  in  character, 
such  as  the  strike.  To  be  effective,  however, 
against  positive  centralization,  positive  decen- 
tralization will  have  to  come — decentralized 
economic  power  is  necessary. 

Among  the  more  important  of  these  forms 
is  the  shop  steward  or  rank-and-file  movement 
in  industry,  and  the  workmen 's  councils  in  poli- 
tics, both  purely  decentralizing  in  tendency, 
quite  apart  from  any  special  policy  for  the 
furtherance  of  which  they  may  be  used.    The 


82  ECONOMIC  DEMOCRACY 

apprehension  with  which  the  movements  are  re- 
garded by  the  reactionary  capitalist  is  based 
far  more  on  a  recognition  of  the  difficulties  such 
a  scheme  of  organization  offers  to  successful 
corruption  and  capture  than  to  any  regard  for 
the  specific  items  in  the  policy  it  may  for  the 
moment  represent;  most  of  which  have  been 
previously  parried  with  ease  when  presented 
through  delegated  Trade  Union  leaders,  whose 
positions  of  authority  have  been  perforce 
achieved  by  exactly  the  methods  best  under- 
stood by  those  with  whom  they  have  to 
deal. 

As  the  Shop  Steward  movement  is  the  most 
definite  industrial  recognition,  from  the  Labor 
side,  of  the  necessity  for  decentralization,  some 
examination  of  the  general  scheme  is  of  inter- 
est. The  actual  details  of  the  organization  vary 
from  place  to  place,  trade  to  trade,  and  even 
day  to  day;  but  the  essence  of  the  idea  consists 
in  the  adoption  of  a  decentralized  unit  of  pro- 
duction such  as  the  "shop"  or  department,  and 
the  substitution  of  actual  workers  in  consider- 
able numbers,  for  the  paid  Trade  Union  official 
as  the  nucleoli  of  both  industrial  and  political 


ECONOMIC  DEMOCRACY  83 

power  (although  the  political  power  is  not  exer- 
cised through  Parliamentary  channels). 

The  shop  steward  is  generally  ''industrial'* 
rather  than  "craft"  in  interest;  that  is  to  say, 
he  represents  a  body  of  men  who  produce  an 
article,  rather  than  a  section  who  perform  one 
class  of  operation  for  widely  different  ends ;  but 
there  is  nothing  inherently  antagonistic  as  be- 
tween the  two  conceptions  of  function,  Indus- 
trial Unionism  being  largely  a  militant  device. 
He  is  quite  limited  in  his  sphere  of  executive 
action,  but  initiates  discussion  on  the  basis  of 
first-hand  information,  and  forms  a  link  be- 
tween the  decentralized  industrial  unit  and 
other  units  which  may  be  concerned.  The  pra(^- 
tical  effect  of  the  arrangement  is  that  the 
spokesmen  are  never  out  of  touch  with  those  for 
whom  they  speak,  since  the  normal  occupation 
and  remuneration  of  representatives  is  similar 
to  that  of  those  they  represent ;  and  should  any 
cleavage  occur,  a  change  of  representative  can 
be  easily  secured.  The  official  concerned  has, 
in  theory,  no  executive  authority  whatever,  nor 
can  he  take  any  action  not  supported  by  his  co- 
workers, i.e.,  the  direction  of  policy  is  from  the 


84  ECONOMIC  DEMOCRACY 

bottom  upwards  instead  of  the  top  downwards. 
The  individual  shop  stewards  are  banded  to- 
gether in  a  shop  stewards'  committee,  which 
has  again  only  just  as  much  authority  as  the 
individuar  workers  care  to  delegate  to  it. 

It  is,  of  course,  obvious  that  the  permanent 
success  of  any  arrangement  of  this  character 
depends  on  a  common  recognition,  amongst  the 
individuals  affected  by  the  organization,  of  cer- 
tain principles  as  **  confirming  standards  of 
reference."  In  other  words,  it  would  be  im- 
possible to  administer  a  complicated  manufac- 
turing concern  on  any  such  principles,  unless 
the  general  body  of  employees  had  a  general 
appreciation  of  the  fundamental  necessities  of 
the  business,  inclusive  of  direction  and  techni- 
cal design. 

In  other  words,  and  in  a  more  general  sense, 
all  political  arrangements  of  this  or  any  other 
description  simply  provide  a  mechanism  for 
the  administration  of  an  agreed  system — they 
are  not,  and  cannot  in  their  very  nature  be, 
that  system  in  itself. 

Where,  of  course,  it  is  clear  that  there  is  a 
confusion  of  function  is,  that  the  shop  steward 


ECONOMIC  DEMOCRACY  86 

claims  control,  not  only  of  the  conditions  of 
production,  but  eventually  of  the  terms  of  dis- 
tribution. This  confusion  is  quite  inevitable  at 
present,  but  is  not  necessarily  permanent,  and 
is  obviously  undesirable.  It  is  based  on  the 
fallacy  that  labor,  as  such,  produces  all  wealth, 
whereas  the  simple  fact  is  that  production  is 
95  per  cent,  a  matter  of  tools  and  process,  which 
tools  and  process  form  the  cultural  inheritance 
of  the  community,  not  as  workers,  but  as  a  com- 
munity, and  as  such  the  community  is  most 
clearly  the  proper,  though  far  from  being  the 
legal,  administrator  of  it. 


CHAPTER  VIII 

Economic  reconatruction  the  first  necessity — Poverty  largely 
artificial — Why  war  has  increased  apparent  prosperity — 
Function  and  control — Medisevalism  and  Ultra-modernism 
— The  idea  of  the  Just  Price — Summary  of  Analysis  of 
Social  Structure — ^The  objective  of  change — The  time- 
energy  unit — Process,  the  key  to  progress — Production  to 
a  program — ^The  conditions  of  economic  emancipation — 
The  incentive  to  effort — Existing  methods — Financial 
manipulation — Time-work — .Piece-work — The  basis  of  the 
Just  Price — Administration  not  germane  to  the  idea — 
The  community  already  owns  the  plant — A  theoretical 
solution — ^Definition  of  capital — The  credit  center — ^The 
separation  of  fimction. 

ADMITTING,  then,  that  any  decentralized 
JLm,  scheme  of  society  must  first  justify  it- 
self economically,  it  is  necessary  to  grapple 
with,  at  any  rate,  the  main  features  of  the  radi- 
cal economic  reconstruction  necessary,  before 
any  attempt  can  be  made  to  forecast  the  politi- 
cal aspect. 

The  starting  point  is  clearly  a  reason- 
ably uniform  and  plentiful  distribution  of 
simple  necessaries:  food,  clothes,  housing, 
etc. 

Now,  the  actual  production  of  these  articles 
presents   no    difficulties    whatever.      Notwith- 

86 


ECONOMIC  DEMOCRACY  87 

standing  the  diversion  of  the  major  portion  of 
the  world's  energy  for  four  years  to  purposes 
of  destruction,  the  actual  economic  want  in  the 
world  has  been  almost  entirely  artificial,  i.e., 
has  been  confined  either  to  countries  effectively 
blockaded,  or  else  lacking  the  mechanical  fa- 
cilities for  effective  distribution.  In  fact,  it  is 
most  significant,  that  while  useful  (in  a  peace 
sense)  production  has  been  enormously  reduced 
in  Great  Britain  during  the  war,  the  standard 
of  comfort  has  been  more  uniformly  high  than 
ever  before. 

The  explanation  of  this  is  simple;  The  pay- 
ments made  in  wages  have  increased,  prices 
and  the  production  of  luxuries  have  been 
partly  controlled,  and  sabotage  has  disposed  of 
useless  product,  and  so  kept  up  wage  distribu- 
tion. 

The  practical  problem,  then,  is  to  make  it 
certain  that  commodities  are  produced  under 
satisfactory  conditions,  and  equally  certain 
that  they  are  distributed  according  to  necessity, 
and  the  organization  for  -these  purposes  may 
well  determine  the  social  structure,  inasmuch 
as  a  complete  success  would  be  the  most  power- 


88  ECONOMIC  DEMOCRACY 

ful  incentive  to  the  adoption  of  similar  methods 
in  less  fundamental  directions. 

Profiting  by  the  deduction  made  from  the 
examination  already  made,  of  the  results  of 
various  types  of  organization,  it  may  be  re- 
peated that  the  best  results  would  seem  prob- 
able from  a  co-ordinated  organization  for 
purposes  of  technique,  with  the  greatest  decen- 
tralization of  initiative  in  the  use  of  the  facili- 
ties so  provided. 

Now,  it  should  be  clearly  grasped  at  the  out- 
set that  at  least  two  main  problems  are  in- 
volved in  the  question  at  issue,  which  may  be 
broadly  defined  as  that  of  the  producer,  and  the 
consumer ;  and  not  only  are  these  entirely  sepa- 
rate, but,  rightly  considered,  they  are  on  com- 
pletely different  planes  of  existence. 

The  problem  of  the  consumer  is  essentially 
material;  he  is  concerned  with  quality,  va- 
riety, price,  supply;  he  is  concerned  with 
prod/uct. 

On  the  contrary,  the  producer  is  almost  en- 
tirely concerned  with  psychological  issues: 
fatigue,  interest,  welfare,  hours  of  labor,  all  of 
which,   qua  producer   pure   and   simple,   are 


ECONOMIC  DEMOCRACY  89 

broadly    summed   up   in   the  word   **  content- 
ment. ' ' 

The  consumer  is  interested  in  distribution; 
the  producer  is  concerned  with  effort.  While 
the  producer  and  the  consumer  are  frequently 
combined  in  the  same  person,  a  recognition  of 
these  distinctions  will  make  it  easier  to  define 
the  powers  which  should  belong  to  each. 

It  is  particularly  necessary  to  emphasize  this 
distinction,  since  the  existing  structure  of  in- 
dustry, based  on  finance,  takes  it  for  granted 
that  the  possession  of  large  quantities  of  goods, 
or  their  equivalent  purchasing  power  in  money, 
is  a  good  and  sufficient  reason  for  the  exercise 
of  a  preponderating  voice  in  the  conditions  and 
processes  of  production. 

We  say,  and  it  is  only  now  that  it  is  faintly 
contested,  that  he  who  pays  the  piper  calls 
the  tune.  The  idea  that  it  is  the  hearer  who  is 
primarily  concerned  in  the  tune,  the  piper  pri- 
marily in  the  instrument,  and  the  payment  a 
mere  convenience  as  between  the  two  parties, 
is  so  novel  to  large  numbers  of  unthinking  per- 
sons, that  it  is  only  natural  to  expect  violent 
opposition  to  the  world-wide  efforts  being  made 


90  ECONOMIC  DEMOCRACY 

to  reconstitute  society  on  these  very  principles. 

Bearing  these  distinctions  in  mind,  it  will 
be  recognized  that  there  are  two  separate  lines 
along  which  to  attack  the  situation  presented 
by  the  dissatisfaction  of  the  worker  with  his 
conditions  of  work,  and  the  not  less  serious  dis- 
content of  the  consumer  with  the  machinery  of 
distribution,  and  these  may  be  called  mediaeval- 
ism  and  ultra-modernism. 

MediaBvalism  seems  to  claim  that  all  me- 
chanical progress  is  unsound  and  inherently  de- 
lusive ;  that  mankind  is  by  his  very  constitution 
compelled,  under  penalty  of  decadence,  to  sup- 
port himself  by  unaided  skill  of  hand  and  eye. 
In  support  of  its  contentions,  it  points  to  the 
Golden  Age  of  the  fourteenth  century  in  Eng- 
land, for  example,  when  real  want  was  com- 
paratively unknown,  and  green  woods  stood, 
and  clear  rivers  ran,  where  the  slag-heaps  and 
chemical  works  of  Widnes  or  Wednesbury  now 
offend  the  eye  and  pollute  the  air;-  when  arts 
and  crafts  made  industry  almost  a  sacrament, 
and  faulty  execution  a  social,  and  even  a  legal 
offense;  when  the  medium  of  exchange  was 
the  Just  Price,  and  the  idea  of  buying  in  the 


ECONOMIC  DEMOCRACY  91 

cheapest  and  selling  in  the  dearest  market,  if  it 
existed,  was  classed  with  usury  and  punished 
by  heavy  penalties. 

"While  appreciating  the  temptation  to  com- 
pare the  two  periods,  to  the  very  great  disad- 
vantage of  the  present,  it  does  not  seem  pos- 
sible to  agree  with  the  conclusion  of  the  Me- 
diasvalist  that  we  are  in  a  cul-de-sac  from  which 
the  only  exit  is  backwards ;  and  it  is  proposed 
to  make  an  endeavor  to  show  that  there  is  a 
way  through,  and  that  we  may  in  time  regain 
the  best  of  the  advantages  on  which  the 
MediaBvalist  rightly  sets  such  store,  retaining 
in  addition  a  command  over  environment,  which 
he  would  be  the  first  to  recognize  as  a  real  ad- 
vance; a  solution  which  may  be  described  as 
Ultra-Modernist. 

In  order  to  do  this,  certain  somewhat  abstract 
assumptions  are  necessary,  and  it  has  been  the 
object  of  the  preceding  pages  to  present  as  far 
as  possible  the  data  on  which  these  assumptions 
are  made.    They  are  as  follows : — 

(1)  The  existing  difficulties  are  the  im- 
mediate result  of  a  social  structure  framed 
to  concentrate  personal  power  over  other 


92  ECONOMIC  DEMOCRACY 

persons,  a  structure  which  must  take  the 
form  of  a  pyramid.  Economics  is  the 
material  key  to  this  modern  riddle  of  the 
sphinx,  because  power  over  food,  clothes, 
and  housing  is  ultimately  power  over  life. 

(2)  So  long  as  the  structure  of  Society 
persists,  personality  simply  reacts  against 
it.  Personality  has  nothing  to  do  with  the 
effect  of  the  structure;  it  simply  governs 
the  response  of  the  individual  to  conditions 
he  cannot  control,  except  by  altering  the 
structure. 

(3)  It  follows  that  general  improvement 
of  conditions  based  on  personality  is  a 
confusion  of  ideas.  Changed  personality 
will  only  become  effective  through  changed 
social  structure. 

(4)  The  pyramidal  structure  of  Society 
gives  environment  the  maximum  control 
over  individuality.  The  correct  objective 
of  any  change  is  to  give  individuality  max- 
imum control  over  environment. 

If  these  premises  are  accepted  it  seems  clear 
that  the  first  and  probably  most  important  step 
is  to  give  the  individual  control  of  the  neces- 


ECONOMIC  DEMOCRACY  93 

saries  of  life  on  the  cheapest  terms  possible. 
What  are  these  terms?  What  is  the  funda- 
mental currency  in  which  the  individual  does 
in  the  last  analysis  liquidate  his  debts?  A  little 
consideration  must  make  it  clear  that  there 
can  be  only  one  reply;  that  the  individual  only 
possesses  inalienable  property  of  the  one  de- 
scription ;  potential  effort  over  a  definite  period 
ol  time.  If  this  be  admitted,  and  it  is  incon- 
ceivable that  any  one  would  seriously  deny  it, 
it  follows  that  the  real  unit  of  the  world's  cur- 
rency is  effort  into  time — ^what  we  may  call  the 
time-energy  unit. 

Now,  time  is  an  easily  measurable  factor, 
and  although  we  cannot  measure  human  poten- 
tial, because  we  have  at  present  no  standard, 
it  is  nevertheless  true  that,  for  a  given  process, 
the  number  of  human  time-energy  units  re- 
quired for  a  given  output  is  quite  definite,  and 
therefore,  the  cheapest  terms  on  which  the  in- 
dividual can  liquidate  his  debt  to  nature  in 
respect  of  food,  clothes,  and  shelter,  is  clearly 
dependent  on  process;  and  by  getting  free  of 
this  debt  with  the  minimum  expenditure  of 
time-energy  units,  of  which  his  individual  sup- 


94  ECONOMIC  DEMOCRACY 

ply  varies,  but  is,  nevertheless,  quite  definite  at 
any  given  time,  lie  clearly  is  so  much  the  richer 
in  the  most  real  sense,  in  that  he  can  control 
the  use  to  be  made  of  his  remaining  stock. 

But,  and  it  is  vital  to  the  whole  argument, 
improved  process  must  be  made  the  servant  of 
this  objective,  that  is  to  say,  a  process  which 
is  improved  must,  by  the  operation  of  a  suitable 
economic  system,  decrease  the  time-energy  units 
demanded  from  the  community,  or  to  put  the 
matter  another  way,  all  improvements  in  proc- 
ess should  be  made  to  pay  a  dividend  to  the 
community.  (It  will  be  noted  that  an  admis- 
sion of  the  theorem  is  a  complete  condemnation 
of  payment  by  results,  as  commonly  under- 
stood; that  is  to  say,  an  arrangement  of  re- 
muneration designed  to  foster  an  increasing 
use  of  time-energy  units.)  The  primary  neces- 
saries of  life  as  above  defined,  i.e.,  food,  clothes 
and  shelter,  have  an  important  characteristic 
which  differentiates  them  from  what  we  may 
call  conveniences  and  luxuries;  they  are  quite 
approximately  constant  in  quantity  per  head  of 
the  population;  in  other  words,  the  average 
human  being  requires  as  a  groundwork  for  his 


ECONOMIC  DEMOCRACY  95 

daily  life  a  definite  number  of  heat  units  in  the 
form  of  suitable  food,  a  definite  minimum  quan- 
tity of  clothing  and  a  definite  minimum  space 
in  which  to  sleep  and  work,  and  the  variation 
between  the  minimum  and  the  maximum  quan- 
tity of  each  that  he  can  utilize  with  advantage 
to  himself  is  not,  broadly  speaking,  very 
great. 

This  fact  renders  it  perfectly  feasible  (it  has 
already  very  largely  been  accomplished) — to 
estimate  the  absolute  production  of  foodstuffs 
required  by  the  world's  population;  the  time- 
energy  units  required  at  the  present  stage  of 
mechanical  and  scientific  development  to  pro- 
duce those  foodstuffs;  and  the  time-energy 
units  approximately  available.  Accuracy  in 
these  estimates  is  unnecessary,  since  there  is 
not  the  very  smallest  doubt  that  the  margins 
are  so  large  that  it  is  only  the  failure  of  **  ef- 
fective demand"  under  existing  circumstances 
which  has  prevented  over-production.  The 
most  superficial  consideration  of  the  earnings 
of  agriculture  before  the  war  must  make  this 
obvious. 

There  is  good  ground  for  stating  that  the 


96  ECONOMIC  DEMOCRACY 

subsistence  basis  of  the  civilized  world  stated 
thus  in  time-energy  units  represents  a  few 
minutes'  work  per  day  for  all  adults  between 
the  ages  ol  18  and  40. 

Exactly  the  same  principle  is  applicable  to 
the  provision  of  clothing  and  housing,  and  the 
* 'maintenance  rate"  in  respect  of  these  staple 
commodities,  as  distinct  from  the  ' '  exploitation 
effort"  necessary  to  put  the  world  on  a  satis- 
factory basis,  does  not  again  exceed  a  few  min- 
utes per  day  per  head,  on  the  assumption  that 
the  fullest  use  is  made  of  natural  sources  of 
energy,  and  that  all  the  human  effort  specifi- 
cally connected  with  the  system  of  production 
for  profit  is  eliminated.  The  exact  figures  are 
beside  the  point,  but  something  over  three 
hours'  work  per  head  per  day  is  ample  for  the 
purpose  of  meeting  consumption  and  deprecia- 
tion of  all  the  factors  of  modern  life  under  nor- 
mal conditions  and  proper  direction. 

Now,  such  a  line  of  policy  is  clearly  based  on 
co-ordination  of  design,  but  it  evolves  under 
certain  conditions  radical  decentralization  of 
initiative. 

These  conditions  are,  firstly,  definite  pro- 


ECONOMIC  DEMOCRACY  97 

ductions  of  ultimate  products  to  a  program, 
and  consequent  limitation  of  output  to  that  pro- 
gram; and,  secondly,  the  provision  of  an  in- 
centive to  produce,  which  shall  insure  the  dis- 
tribution of  the  article  produced.  The  basis  of 
the  first  condition  has  just  been  indicated 
briefly;  the  provision  of  an  incentive  requires 
more  extended  analysis. 

There  is  a  disposition  on  the  part  of  certain 
idealistic  people,  and,  in  particular,  in  quarters 
obsessed  by  the  magic  of  the  State  idea,  to  de- 
cry the  necessity  of  any  organized  incentive  in 
industry  at  all.  They  seem  to  suggest  either 
that  the  problem  is  merely  one  of  designing  a 
huge  machine  of  such  irresistible  power  that  no 
incentive  is  necessary  because  no  resistance  is 
possible,  or,  alternatively,  that  the  mere  crea- 
tive impulse  ought  to  be  sufficient  to  induce 
every  individual  to  give  of  his  best  without  any 
thought  of  personal  benefit.  In  regard  to  the 
former  idea,  it  may  be  said  that,  quite  apart 
from  its  fundamental  objection,  it  is  quite  im- 
practicable ;  and  in  regard  to  the  latter  that  it 
is  not  yet,  nor  for  a  very  considerable  time 
likely  to  be,  practicable  to  satisfy  the  creative 


98  ECONOMIC  DEMOCRACY 

impulse  through  the  same  channels  as  those 
used  for  the  economic  business  of  the  world. 

Under  existing  conditions,  there  is  much 
necessary  work  to  be  done  which  cannot  fail 
to  be  largely  of  a  routine  nature,  and  the  pro- 
vision of  an  incentive  external  to  the  perform- 
ance of  the  immediate  task  seems  both  prac- 
tically and  morally  sound. 

First  of  all,  soijae  consideration  of  the  defects 
of  existing  incentives  is  necessary  in  order  to 
meet  the  difficulties  so  exposed. 

Broadly,  remuneration,  or  the  system  by 
which  the  amenities  of  civilization  are  placed  at 
the  disposal  of  the  individual,  is  of  three 
varieties:  payment  by  financial  manipulation 
(profit),  payment  by  time  (salaries  and  time- 
rate  wages),  and  payment  by  results  (piece- 
work in  all  its  forms),  and  it  should  be  noticed 
that  only  the  first  of  these  combines  possession 
of  the  amenities  with  opportunities  for  their 
fullest  use. 

Payment  by  financial  manipulation,  whether 
through  the  agency  of  profit  (other  than  that 
earned  by  personal  endeavor),  stock  manipula- 
tion or  otherwise,  is  quite  definitely  anti-social. 


ECONOMIC  DEMOCRACY  99 

It  operates  to  neutralize  all  progress  towards 
real  eflSciency,  by  diluting  the  medium  of  ex- 
change, and  by  this  process  it  will  quite  cer- 
tainly bring  about  the  downfall  of  the  social 
order  to  which  it  belongs,  largely  through  the 
operation  of  the  factory  economic  system  al- 
ready discussed. 

Payment  by  time  fails  for  two  practical 
reasons :  it  is  based  on  the  operation  of  the  fal- 
lacy that  the  valiie  of  a  thing  bears  any  relation 
to  the  demand  for  it,  and  the  assumption  that 
money  has  a  fixed  value.  Because  of  the  first 
reason  it  clearly  penalizes  genuine  initiative 
(because  there  is  no  demand  for  the  unknown), 
and  because  of  the  second,  it  fosters  aggression. 
The  policy  of  Trade  Unions  in  regard  to  time 
rates  of  pay  has  simply  been  successful  to  the 
extent  that  it  has  used  its  organized  power  for 
aggressive  action ;  and  while  such  a  policy  may 
be  sound  and  justifiable  under  existing  condi- 
tions, it  clearly  offers  no  promise  of  social 
peace. 

Payment  by  results  or  piece-work  may  be 
considered  as  the  final  effort  of  an  outworn 
system  to  justify  itself.    Superficially,  it  seems 


100  ECONOMIC  DEMOCRACY 

fair  and  reasonable  in  almost  any  of  its  many 
forms ;  actually  it  operates  to  increase  the  indi- 
vidual time-energy  units  expended  while  de- 
creasing, through  diluted  currency,  the  ex- 
change value  of  each  time-energy  unit,  and 
crediting  to  the  banker  and  the  financier  nearly 
the  whole  value  of  increased  efficiency.  If  this 
contention  is  questioned,  a  reference  to  the 
much  greater  purchasing  power  of  labor  in 
the  Middle  Ages,  admitted  in  such  books 
as  **The  Six-Hour  Day,"^  must  surely  con- 
firm it. 

In  actual  practice,  piece-work  neither  does 
nor  can  take  into  consideration  that,  just  as 
there  is  no  limit  to  progress  either  of  method 
or  dexterity,  so  is  there  no  fundamental  rela- 
tion between  money  and  value  as  at  present 
understood. 

Consequently,  all  piece-work  systems  pro- 
duce in  varying  degree  one  of  three  conditions, 
either 

(1)    Large  classes  of  workers  earn  con- 
tinuously increasing  sums  of  money  which 

I  "The  Six-Hour  Day  and  other  Industrial  Problems." — 
Lord  Leverhulme. 


ECONOMIC  DEMOCRACY  101 

bear  no  ratio  to  equally  meritorious  efforts 
on  other  bases  of  payment. 

K  any  effort  is  made  to  uaify  the  basis 
on  a  large  scale  the  purchasing  power  of 
money  becomes  completely  unstable. 
or'      (2)    A  piece  rate  is  "nursed"  to  avoid 
any  urgent  incentive  to  change  of  method 
as  an  excuse  for  cutting  the  rate  and  earn- 
ings, with  the  result  that  output  is  re- 
stricted to  a  locally  agreed  basis,  having  no 
relation  to  either  real  or  effective  demand. 
or        (3)    The  price  will  be  cut  periodically 
by  dubious  management,  a  constant  state  of 
friction  engendered,  and  the  whole  affair 
surrounded  with  an  atmosphere  of  sus- 
picion. 
These  results  are  logical,  and  to  blame  any 
special  interest  for  any  of  them  is  beside  the 
point.     The  use-value   of  the  product,  short 
time,  unemployment,  to  say  nothing  of  the  ele- 
mental facts  of  industrial  psychology  and  eco- 
nomics, are  not  considered  at  all  in  such  sys- 
tems ;  with  the  result  that  the  victims  make,  so 
far  as  Trade  Unions  on  the  one  hand,  and  Em- 
ployers'  Federations  on  the  other,  can  assist 


102  ECONOMIC  DEMOCRACY 

them,  their  own  arrangements  for  protection 
against  the  more  dire  consequences  of  crude 
forms  of  scientific  management,  or  lukewarm 
service. 

We  have  now  arrived  at  this  position:  we 
desire  to  produce  a  definite  program  of  neces- 
saries with  a  minimum  expenditure  of  time- 
energy  units.  We  agree  that  the  substitution 
of  human  effort  by  natural  forces  through  the 
agency  of  machinery  is  the  clear  path  to  this 
end ;  and  we  require  to  co-relate  to  this  a  system 
which  will  arrange  for  the  equitable  distribu- 
tion of  the  whole  product  while,  at  the  same 
time,  providing  the  most  powerful  incentive  to 
efficiency  possible. 

The  general  answer  to  this  problem  may  be 
stated  in  the  four  following  propositions,  which 
represent  an  effort  to  arrive  at  the  Just 
Price : — 

(1)  Natural  resources  are  common 
property,  and  the  means  for  their  exploita- 
tion should  also  be  common  property. 

(2)  The  payment  to  be  made  to  the 
worker,  no  matter  what  the  unit  adopted, 
is  the  sum  necessary  to  enable  him  to  buy 


ECONOMIC  DEMOCRACY  103 

a  definite  share  of  ultimate  products,  irre- 
spective of  the  time  taken  to  produce 
them. 

(3)  The  payment  to  be  made  to  the  im- 
prover of  process,  including  direction,  is 
to  be  based  on  the  rate  of  decrease  of 
human  time-energy  units  resulting  from 
the  improvement,  and  is  to  take  the  form 
of  an  extension  of  facilities  for  further 
improvement  in  the  same  or  other  proc- 
esses. 

(4)  Labor  is  not  exchangeable;  prod- 
uct is. 

No  attempt  will  be  made  to  prove  these 
propositions,  since  their  validity  rests  on 
equity. 

It  should  be  noted  particularly,  that  none  of 
these  points  has  any  relation  to  systems  of  ad- 
ministration, although  a  recognition  of  them 
would  radically  affect  the  distribution  of  per- 
sonnel in  any  system  of  administration. 

While  the  distribution  of  the  product  of  in- 
dustry is  fundamentally  involved,  and  the  in- 
ducements to  vary  the  articles  produced  are 
clearly  modified  to  a  degree  which  would  pro- 


104  ECONOMIC  DEMOCRACY 

foundly  alter  the  industrial  situation,  no  exten- 
sion of  bureaucracy  in  the  accepted  sense  is  im- 
plied or  induced. 

It  may  he  argued  that  these  principles  are 
not  susceptible  of  immediate  embodiment;  but 
it  is,  nevertheless,  well  to  bear  in  mind  the  im- 
minence of  an  economic  breakdown  (as  a  direct 
result  of  the  inflation  of  currency  by  the  capi- 
talization of  negative  values)  already  dis- 
cussed, and  the  probability  that  a  new  economic 
system,  having  as  its  basis  the  principles  of  the 
law  of  the  conservation  of  energy,  will  re- 
place it. 

It  may  be  said  in  regard  to  proposition  (1) 
that  it  involves  a  confiscation  of  plant  which 
is  clearly  an  injustice  to  the  present  owners. 
But  is  it? 

A  reference  to  the  accounting  process  al- 
ready described  will  make  it  clear  that  the  com- 
my/nity  has  already  bought  and  paid  for,  ma/ny 
times  over,  the  whole  of  the  pla/nt  used  for 

manufacturing  processes,  the  purchase  price 

« 

being  included  in  the  selling  price  of  the  articles 
produced,  and  representing,  in  the  ultimate, 
effort  of  some  sort,  but  immediately,  a  rise  in 


ECONOMIC  DEMOCRACY  105 

the  cost  of  living.  If  the  commmiity  can  use 
the  plant,  it  is  clearly  entitled  to  it,  quite  apart 
from  the  fact  that  under  proper  conditions 
there  is  no  reason  why  every  reasonable  re- 
quirement of  its  present  owners  should  not  be 
met  under  the  changed  conditions. 

Before  allowing  the  methods  of  compromise, 
which  may  or  may  not  be  desirable  in  the  prac- 
ticable evolution  of  a  better  conception  of  the 
community,  based  on  these  propositions,  to 
obscure  the  objective,  a  purely  idealistic  inter- 
pretation of  them  may  be  worth  consideration, 
as  a  basis  from  which  to  deduce  a  practical 
policy. 

Let  us  imagine  the  theories  of  rent  and  wages 
to  be  swept  away  and  discredited,  the  existing 
industrial  plant  to  be  the  property  of  the  com- 
munity and  to  be  operating  with  technical  ef- 
ficiency. We  are  in  possession  of  a  census  of 
the  material  requirements  of  the  community, 
and  are  producing  to  a  program  either  based 
on  those  requirements  or  on  the  indirect 
achievement  of  them  by  the  processes  of  barter 
with  similar  conamunities. 

Since  no  extension  or  alteration  of  this  pro- 


106  ECONOMIC  DEMOCRACY 

gram  is  possible  without  affecting  the  whole 
community,  the  administration  of  real  capital, 
i.e.,  the  power  to  draw  on  the  collective  poten- 
tial capacity  to  do  work,  is  clearly  subject  to  the 
control  of  its  real  owners  through  the  agency 
of  credit. 

Let  us  imagine  this  collective  credit  organi- 
zation, which  might  preferably  not  be  the  State, 
to  be  provided  with  the  necessary  organization 
to  fit  it  to  pass  upon,  and  if  desirable  to  sanc- 
tion, any  private  enterprise  deemed  to  be  in 
the  interest  of  the  community  represented,  the 
necessary  capitalization  being  secured  by  the 
general  credit.  It  is  clear  that  such  an  arrange- 
ment involves  an  appraisal  of  values  both  in 
respect  to  persons  and  materials,  but  it  does  not 
necessarily  involve  any  control  of  policy  what- 
ever in  respect  of  the  internal  administration 
of  any  undertaking  once  originated. 

Under  these  conditions  the  community  can  be 
regarded  as  a  single  undertaking  (decentral- 
ized as  to  administration  to  any  extent  neces- 
sary) and  every  individual  comprised  within 
it  is  in  the  position  of  an  equal  Bondholder  en- 
titled to  an  equal  share  of  product.    The  dis- 


ECONOMIC  DEMOCRACY  107 

tribution  of  the  product  is  simply  a  problem  of 
the  arbitrary  adjustment  of  prices  to  fit  the 
dimensions  of  a  periodical  order  to  pay,  issued 
to  each  bondholder,  and  we  shall  see  that  such 
prices  mil  normally  he  less  than  cost,  as  meas- 
ured by  existing  methods. 

Let  this  annual  order  to  pay  be  inalienable, 
but  carrying  the  assumption  that  a  definite  per- 
centage of  the  individual's  stock  of  time-energy 
units  is  freely  placed  at  the  disposal  of  the 
community.  Let  these  time-energy  units  be 
graded,  so  that  the  lowest  grade  represents  the 
poorest  capacity  multiplied  by  the  time-factor, 
and  let  all  adults  on  entering  productive  in- 
dustry be  so  graded,  and  let  the  least  attractive 
work  be  done  by  the  agency  of  these  time- 
energy  units.  Let  an  improvement  of  grade  be 
based  on  the  proposal  by  the  individual  of 
methods,  processes  or  organization  resulting  in 
a  diminution  of  the  total  time-energy  units  re- 
quired for  the  program  of  production,  and  the 
success  of  the  proposals.  (It  will  be  noticed 
that  the  strongest  incentive  to  right  judgment 
as  regards  facilities  for  trial  exists  here.)  Let 
the  possession  of  a  definite  "grade"  of  time- 


108  ECONOMIC  DEMOCRACY 

energy  imits  be  the  absolute  qualification  for 
each  class  of  employment ;  that  is  to  say,  proved 
ability  to  render  special  service  will  be  the 
qualification  for  facilities  to  render  service,  but 
will  not  affect  the  division  of  product. 

Now,  it  will  be  noticed  that  we  have  under 
these  conditions  absolute  equity,  both  personal 
and  social.  All  improvement  in  process  is  to 
the  general  benefit,  while,  at  the  same  time,  the 
psychological  reward  of  specific  ability  is 
exactly  that  which  common  experience  shows 
to  be  the  most  perfectly  satisfactory.  No  ques- 
tions of  material  remuneration  enter  into  the 
problem  of  administration  at  all ;  and  increased 
complexity  of  manufactured  product  is  either 
bought  by  increased  efficiency  or  longer  work- 
ing hours;  while  simplicity  of  life  provides 
greater  opportunities  for  the  use  of  the  product 
and  other  activities.  A  system  not  dissimilar 
from  the  existing  Shop  Steward  system,  but 
with  its  members  acting  in  the  role  of  Citizens, 
and  not  as  Artisans,  might  control  policy  abso- 
lutely, i.e.,  increase  or  decrease  programs  of 
production  and  efficiency,  etc.,  without  interfer- 
ing, or  having  any  possible  incentive  to  inter- 


ECONOMIC  DEMOCRACY  109 

fere,  in  direction  or  function.  Economic  in- 
centive to  competition  other  than  in  eflficiency 
would  disappear  completely,  and  with  it  the 
primary  cause  of  war. 


CHAPTER  IX 

Necessity  of  dealing  with  Society  as  it  is — More  purchasing 
power  wanted — Futility  of  general  wage  increases — And 
of  excess  profits  taxation — ^Vital  importance  of  loan- 
credit — Definition  of  real  credit — Credit  derives  from  the 
community — Should  be  accounted  for  to  the  community — 
The  nature  of  the  War  Debt — The  State  a  creditor,  not  a 
debtor — How  to  realize  it — Time-saving  as  an  incentive 
— Results  of  projected  policy — Freedom. 

WHILE  a  much  higher  development,  not 
only  of  civic  sense,  but  of  material 
progress,  is  necessary  to  a  realization  of  a 
scheme  of  society  based  on  anything  approxi- 
mating to  the  foregoing  sketch,  it  is  quite  prob- 
able that  eventually  such  an  arrangement  might 
be  the  only  solution  having  inherent  stability. 

But  a  transition  period  is  highly  desirable, 
and  as  the  present  structure  is  susceptible  of 
change  by  metabolism,  it  may  be  well  to  con- 
sider one  of  the  numerous  expedients  avail- 
able to  that  end. 

Since  an  immediate  leveling  up  of  real  pur- 
chasing power  is  absolutely  essential  if  indus- 
try is  to  be  kept  going  at  all,  the  first  point  on 
which  to  be  perfectly  clear  is  that  increasing 

no 


ECONOMIC  DEMOCRACY  111 

wages  on  the  grand  scale  is  simply  childish. 
Given  a  minimum  percentage  of  profit,  and  a 
fixed  process,  under  the  existing  economic  sys- 
tem the  real  wage,  in  the  sense  of  a  proportion 
of  product,  is  steadily  decreasing ;  and  nothing 
will  alter  that  fact  except  change  of  process 
(temporarily)  and  change  of  economic  system 
(permanently).  Even  taxation  of  profits  is 
quite  incapable  of  providing  any  real  remedy, 
because,  as  we  have  seen,  the  sum  of  the  wages, 
salaries  and  dividends  distributed  in  respect  of 
the  world's  production,  even  if  evenly  dis- 
tributed, would  not  buy  it,  since  the  price  in- 
cludes non-existent  values.  There  is  no  doubt 
whatever  that  the  first  step  towards  dealing 
with  the  problem  is  the  recognition  of  the  fact 
that  what  is  commonly  called  credit  by  the 
banker  is  administered  by  him  primarily  for 
the  purpose  of  private  profit,  whereas  it  is  most 
definitely  communal  property.  In  its  essence  it 
is  the  estimated  value  of  the  only  real  capital — 
it  is  the  estimate  of  the  potential  capacity  tinder 
a  given  set  of  conditions,  including  pla/nt,  etc., 
of  a  Society  to  do  work.  The  banking  system 
has  been  allowed  to  become  the  administrator 


112  ECONOMIC  DEMOCRACY 

of  this  credit  and  its  financial  derivatives,  with 
the  result  that  the  creative  energy  of  mankind 
has  been  subjected  to  fetters  which  have  no 
relation  whatever  to  the  real  demands  of  exist- 
ence, and  the  allocation  of  tasks  has  been  placed 
in  unsuitable  hands. 

Now,  it  cannot  be  too  clearly  emphasized  that 
real  credit  is  a  measure  of  the  effective  reserve 
of  energy  belonging  to  a  community,  a/nd,  in  con- 
sequence, drafts  on  this  reserve  should  be  ac- 
counted for  by  a  financial  system  which  reflects 
that  fact. 

If  this  be  borne  in  mind,  together  with  the 
conception  of  ** Production"  as  a  conversion  ab- 
sorbing energy,  it  will  be  seen  that  the  individ- 
ual should  receive  something  representing  the 
diminution  of  the  communal  credit-capital  in 
respect  of  each  unit  of  converted  material. 

It  remains  to  consider  how  these  abstract 
propositions  can  be  given  concrete  form. 

So  far  as  Great  Britain  is  concerned,  the  in- 
strument which  comes  most  easily  to  the  hand 
to  deal  with  the  matter  is  the  National  Debt, 
which  for  practical  purposes  may  be  considered 
to  be  the  War  Debt  in  all  its  forms,  although 


ECONOMIC  DEMOCRACY  113 

it  should  be  clearly  understood  that  all  appro- 
priations of  credit  can  be  considered  as  equally 
concerned. 

Some  consideration  of  the  real  nature  of  the 
debt  is  necessary  in  order  to  understand  the 
basis  of  this  proposal. 

The  $40,000,000,000  in  round  numbers  which 
has  been  subscribed  for  war  purposes  repre- 
sents as  to  its  major  portion  (apart  from  about 
$7,500,000,000  re-lent)  services  which  have  been 
rendered  and  paid  for,  and  in  particular  the 
sums  paid  for  munitions  of  all  kinds,  payment 
of  troops  and  sums  distributed  in  pensions  and 
other  doles.  Now,  the  services  have  been  ren- 
dered and  the  munitions  expended,  conse- 
quently the  loan  represents  a  lien  with  interest 
on  the  future  activities  of  the  community,  in 
favor  of  the  holders  of  the  loan,  that  is  to  say, 
the  community  guarantees  the  holders  to  work 
for  them  without  payment,  for  an  indefinite 
period,  in  return  for  services  rendered  by  the 
subscribers  to  the  Loan.  What  are  those 
services  ? 

Disregarding  holdings  under  $5,000  and  re- 
investment of  pre-war  assets,  the  great  bulk 


114.  ECONOMIC  DEMOCRACY 

of  the  loan  represents  purchases  by  large  in- 
dustrial and  financial  undertakings  who  ob- 
tained the  money  to  buy  by  means  of  the  crea- 
tion and  appropriation  of  credits  at  the  expense 
of  the  community  through  the  agency  of  indus- 
trial accounting  and  bank  finance. 

It  is  not  necessary  to  elaborate  this  conten- 
tion at  any  great  length  because  it  is  quite  ob- 
viously true.  Eventually,  to  have  any  meaning, 
the  loan  must  be  paid  off  in  purchasing  power 
over  goods  not  yet  produced,  and  is,  therefore, 
simply  a  portion  of  the  estimated  capacity  of 
the  nation  to  do  work  which  has  been  hypothe- 
cated. 

Whatever  may  be  said  of  subscriptions  out 
of  wages  and  salaries,  therefore,  there  is  not 
the  slightest  question  that  in  so  far  as  the  loan 
represents  the  capitalization  of  the  processes 
already  described,  its  owners  have  no  right  in 
equity  to  it — it  simply  represents  communal 
credit  transferred  to  private  account. 

To  put  the  matter  another  way:  For  every 
shell  made  and  afterwards  fired  and  destroyed ; 
for  every  aeroplane  built  and  crashed ;  for  all 
the  stores  lost,  stolen  or  spoilt;  the  Capitalist 


ECONOMIC  DEMOCRACY  116 

has  an  entry  in  his  books  which  he  calls  wealth, 
and  on  which  he  proposes  to  draw  interest  at 
5  per  cent.,  whereas  that  entry  represents  loss 
not  gain,  debit  not  credit,  to  the  community, 
and,  consequently,  is  only  realizable  by  regard- 
ing the  interest  of  the  Capitalist  as  directly  op- 
posite to  that  of  the  community.  Now,  it  must 
he  perfectly  obvious  to  any  one  who  seriously 
considers  the  matter,  that  the  State  should  lend, 
not  borrow,  and  that  in  this  respect,  as  in 
others,  the  Capitalist  usurps  the  fu/nction  of  the 
State. 

But,  however  the  matter  be  considered,  the 
National  Debt  as  it  stands  is  simply  a  state- 
ment that  an  indefinite  amount  of  goods  and 
services  (indefinite  because  of  the  variable  pur- 
chasing power  of  money)  are  to  be  rendered  in 
the  future  to  the  holders  of  the  loan,  i.e.,  it  is 
clearly  a  distributing  agent. 

Now,  instead  of  the  levy  on  capital,  which  is 
widely  discussed,  let  it  be  recognized  that  credit 
is  a  communal,  not  a  bankers'  possession;  let 
the  loan  be  redistributed  by  the  same  methods 
suggested  in  respect  of  a  capital  levy  so  that  no 
holding  of  over  $5,000  is  permitted;  to  the  end 


116  ECONOMIC  DEMOCRACY 

that,  say,  8,000,000  heads  of  families  are  cred- 
ited with  $250  per  annum  of  additional  purchas- 
ing power. 

And  further,  let  all  production  be  costed  on  a 
uniform  system  open  to  inspection,  the  factory 
cost  being  easily  ascertained  by  making  all 
payments  through  a  credit  center;  the  manner 
of  procedure  to  this  end  is  described  hereafter. 
Let  all  payments  for  materials  and  plant  be 
made  through  the  Credit  Center  and  let  plant 
increases  be  a  running  addition  to  the  existing 
National  Debt,  and  let  the  yearly  increase  in 
the  debt  be  equally  distributed  after  proper 
depreciation.  Let  the  selling  price  of  the  prod- 
uct be  adjusted  in  reference  to  the  effective  de- 
mand, by  means  of  a  depreciation  rate  fixed  on 
the  principle  described  subsequently,  and  let  all 
manufacturing  and  agriculture  be  done,  with 
broad  limits,  to  a  program.  Payment  for  in- 
dustrial service  rendered  should  be  made  some- 
what on  the  following  lines : — 

Let  it  be  assumed  that  a  given  production 
center  has  a  curve  of  efficiency,  varying  with 
output,  which  is  a  correct  statement  for  a  given 
process    worked    at    normal    intensity.      The 


ECONOMIC  DEMOCRACY  117 

center  would  be  rated  as  responsible  for  a  pro- 
gram, over  a  given  time,  such  that  this  efficiency 
would  be  a  maximum  when  considered  with 
reference  to,  say,  a  standard  six-hour  day.  On 
this  rating,  it  is  clear  that  the  amount  of  money 
available  for  distribution  in  respect  of  labor 
and  staff  charges  can  be  estimated  by  methods 
familiar  to  every  manufacturer. 

Now,  let  this  sum  be  allocated  in  any  suit- 
able proportion  between  the  various  grades  of 
effort  involved  in  the  undertaking,  and  let  a 
considerable  bonus,  together  with  a  recognized 
claim  to  promotion,  be  assured  to  any  individ- 
ual who,  by  the  suggestion  of  improved 
methods  or  otherwise,  can,  for  the  specified 
program,  reduce  the  hours  worked  by  the  fac- 
tory or  department  in  which  he  is  engaged. 

Now,  consider  the  effect  of  these  measures: 
Firstly,  there  is  an  immediate  fall  in  prices 
which  is  cumulative,  and,  consequently,  a  rise 
in  the  purchasing  power  of  money.  Secondly, 
there  is  a  widening  of  effective  demand  of  all 
kinds  by  the  wider  basis  of  financial  distribu- 
tion. There  is  a  sufficient  incentive  to  produce, 
but  there  is  communal  control  of  undesirable 


118  ECONOMIC  DEMOCRACY 

production  through  the  agency  of  credit;  and 
there  is  incentive  to  efficiency.  There  is  the 
mechanism  by  which  the  most  suitable  technical 
ability  would  be  employed  where  it  would  be 
most  useful,  while  the  separation  of  a  sufficient 
portion  of  the  machinery  of  economic  distribu- 
tion from  the  processes  of  production  would 
restore  individual  initiative,  and,  under  proper 
conditions,  minimize  the  effects  of  bureaucracy. 
This  rapid  survey  of  the  possibilities  of  a 
modified  economic  system  will,  therefore,  prob- 
ably justify  a  somewhat  more  detailed  examina- 
tion of  certain  features  of  the  proposed  struc- 
ture, and  clearly  the  control  and  use  of  credit 
is  of  primary  importance.  It  should  be  par- 
ticularly noted  at  this  point,  however,  that 
every  suggestion  made  in  this  connection  has 
in  view  the  maximum  expansion  vn  the  personal 
control  of  initiative  and  the  mi/nimizvng,  a/nd 
final  elimination,  of  economic  domination, 
either  personal  or  through  the  agency  of  the 
State. 


CHAPTER  X 

The  relation  of  semi-manufactures  to  credit — ^The  Clearing- 
house— ^How  to  "  clear  "  overhead  charges — Exact  state- 
ment of  the  Just  Price — How  to  meet  the  War  Debt — 
The  dawn  of  real  co-operation. 

IN  considering  the  inadequacy  of  a  mere  ex- 
tension of  manufacturing  production,  unac- 
companied by  a  modification  of  the  distributing 
system,  it  was  seen  that,  in  any  manufacturing 
process,  there  enters  into  the  cost,  and  re- 
appears in  the  price,  a  charge  for  certain  items 
which  are  really  rendered  useless,  but  which 
form  a  step  towards  the  final  product.  These 
items  may  be  conveniently  grouped  under  the 
heading  of  semi-manufactures  when  considered 
in  relation  to  a  more  complex  product,  although 
in  many  cases  they  may  in  themselves,  for  other 
purposes,  represent  a  final  product.  For  in- 
stance, electric  power,  if  used  for  lighting,  is  a 
final  product,  and  ministers  directly  to  a  human 
need,  but  the  same  energy,  if  used  to  drive  a 
cotton  mill,  is,  in  the  sense  in  which  the  term  is 
here  used,  a  semi-manufacture. 

119 


120  ECONOMIC  DEMOCRACY 

Now,  it  should  be  obvious  that  a  semi-manu- 
facture, in  this  sense,  is  of  no  use  to  a  con- 
sumer— if  it  is  used  as  an  ultimate  product,  it 
ceases  to  come  under  the  heading  of  a  semi- 
manufacture. 

Therefore,  a  semi-manufacture  must  be  an 
asset  to  be  counted  into  an  estimate  of  the 
potential  capacity  to  produce  ultimate  products 
(which  is  the  whole  object  of  manufacture  from 
a  human  point  of  view),  and,  with  certain  reser- 
vations, represents  an  increase  of  credit-capi- 
tal, hut  not  of  wealth.  This  conception  is  of  the 
most  fundamental  importance. 

If  we  concede  its  validity,  a  transfer  of  value 
in  respect  of  semi-manufactures  as  between  one 
undertaking  and  another  is  measured  by  a 
transfer  of  real  credit,  and,  like  a  financial 
credit  transfer,  is  most  suitably  dealt  with 
through  the  agency  of  a  Clearing-house. 

Let  us  imagine  such  a  Clearing-house  to 
exist,  and  endeavor  to  analyze  its  operations  in 
respect  to  Messrs.  Jones  and  Company  who  tan 
leather,  Messrs.  Brown  and  Company  who 
make  boots,  and  Messrs.  Eobinson  who  sell 
them,  and  let  us  imagine  that  all  these  under- 


ECONOMIC  DEMOCRACY  121 

takings  are  mn  on  the  basis  of  a  commission  or 
profit  on  all  labor  and  salary  costs,  an  arrange- 
ment which  is,  however,  quite  inunaterial  to  the 
main  issue. 

Messrs.  Jones  receive  raw  hides  of  the 
datum  value  of  $500  which  require  semi-manu- 
factures, value  $2,500,  to  turn  out  as  leather, 
together  with  the  expenditure  of  $2,500  in 
wages  and  salaries.  Messrs.  Jones  order  the 
hides  and  the  semi-manufactures  by  the  usual 
methods  from  any  source  which  seems  to  them 
desirable,  and  on  receipt  of  the  invoices,  turn 
these  into  the  Clearing-house,  which  issues  a 
check  in  favor  of  Messrs.  Jones  for  the  total 
amount,  $3,000;  by  means  of  which  Messrs. 
Jones  deal  with  their  accounts  for  supplies. 

The  Clearing-house  writes  up  its  capital  ac- 
count by  this  sum,  and  by  all  sums  issued  by  it. 
The  out-of-pocket  cost  to  Messrs.  Jones  of  their 
finished  product  is,  therefore,  $2,500.  Let  us 
allow  them  10  per  cent,  profit  on  this,  and  the 
cost,  plus  profit,  at  the  factory  under  these  con- 
ditions is  $2,750,  and  a  sum  of  $3,000  is  owing 
to  the  Clearing-house. 

Messrs.  Brown,  who  require  these  hides  for 


122  ECONOMIC  DEMOCRACY 

boot-making,  order  them  from  Messrs.  Jones, 
and  other  supplies  from  elsewhere  amounting 
to  $2,500,  and  similarly  transmit  Messrs.  Jones' 
invoices  (which  include  the  sums  paid  by  the 
Clearing-house),  with  the  rest,  to  the  Clearing- 
house, which  issues  a  check  for  $8,250  to 
Messrs.  Brown,  who  pay  Messrs.  Jones;  who, 
in  turn,  retain  $2,750  and  pay  back  $-3,000  to 
the  Clearing-house.  Messrs.  Jones  are  now  dis- 
posed of.  They  have  made  their  own  arrange- 
ments in  respect  of  quantity  of  labor,  etc.,  and 
have  made  a  profit  of  10  per  cent,  on  the  cost 
of  this  labor. 

Messrs.  Brown  now  make  the  leather  into 
boots,  expending  a  further  $2,500  in  salaries 
and  wages,  and  making  10  per  cent,  profit  on 
this.  They  receive  an  order  from  Messrs. 
Robinson  for  these  boots:  and  Messrs.  Robin- 
son's own  out-of-pocket  cost,  with  their  com- 
mission, is  $1,500,  paid  by  a  check  from  the 
Clearing-house  for  $11,000  +  $1,500,  $11,000  of 
which  goes  to  Messrs.  Brown,  who  pay  off  their 
debt  of  $8,250  and  retain  the  remainder. 

Now,  let  us  notice  that  the  purchasing  power 
released  externally  in  these  transactions  is  that 


ECONOMIC  DEMOCRACY  123 

represented  by  wages,  salaries  and  a  commis- 
sion on  them,  and  that  no  goods  have  been,  so 
far,  released  to  consumers  against  this  pur- 
chasing power.  These  sums  thus  distributed 
will  be  largely  expended  by  the  recipients  in 
various  forms  of  consumption,  and  it  is  only 
their  joint  surplus  which  will  assist  in  provid- 
ing an  effective  demand  for  Messrs.  Robinson's 
stock.  The  price  of  this  stock  then  requires 
adjustment. 

Let  us  now  introduce  into  the  transactions 
a  document  we  may  call  a  retail  clearing  in- 
voice, which  might  form,  in  its  description  of 
the  goods,  a  duplicate  of  the  bill  paid  by  the 
purchaser  of  an  article  for  the  purpose  of  ulti- 
mate consumption ;  and  let  it  be  understood  that 
a  properly  executed  retail  clearing  invoice  is 
accepted  by  the  Clearing-house  as  evidence  of 
the  transfer  of  goods  to  an  actual  consumer.  It 
will  be  seen  that,  by  the  process  previously  ex- 
plained, we  have  distributed  the  means  of  pur- 
chase, and  are  left  in  a  position  to  fix  the  price 
without  reference  to  the  individual  interests  of 
Messrs.  Brown,  Jones  or  Robinson,  as  so  far 
the  cost  is  charged  to  capital  account.     The 


124  ECONOMIC  DEMOCRACY 

question  is  what  should  the  price  be?  The 
answer  to  this  is  a  statement  of  the  average  de- 
preciation of  the  capital  assets  of  the  commur- 
nity,  stated,  i/n  terms  of  money  released  over  an 
equal  period  of  time,  and  the  correct  price  is 
the  money  value  of  this  depreciation  in  terms 
of  the  cost  of  the  article.  In  other  words,  the 
Just  Price  of  an  article,  which  is  the  price  at 
which  it  can  be  effectively  distributed  in  the 
community  producing,  bears  the  same  ratio  to 
the  cost  of  production  that  the  total  consump- 
tion and  depreciation  of  the  community  bears 
to  the  total  capital  production. 

Let  us  now  apply  this  to  our  example  of  such 
a  staple  as  the  supply  of  boots.  Let  us  assume 
that  in  a  given  credit  area  the  sum  involved  in 
the  delivery  of  boots  to  the  user  per  month 
amounts  to  $12,500,  that  is  to  say,  the  cost  fig- 
ures of  the  retail  invoices  turned  into  the  Clear- 
ing-house per  month  total  that  sum.  This 
means  that  services  have  been  rendered  and  re- 
munerated by  the  payment  over  an  indefinite 
period  of  the  token  value  of  $12,500,  and  the 
product  of  these  services  distributed  in  one 
month.    But  the  token  value  has  a  general  pur- 


ECONOMIC  DEMOCRACY  125 

chasing  power,  consequently/  it  should  be  set 
against  a  general  value.  The  general  value  is 
equal  to  the  general  rate  of  depreciation,  or  if 
it  be  preferred,  consumption,  of  the  whole  of 
the  goods  which  can  be  bought  with  the  token 
value.  Let  us  assume  this  to  be  40  per  cent., 
that  is  to  say,  let  us  imagine  that  of  the  total 
work  of  the  community  for  one  month  60  per 
cent,  remains  for  use  during  a  subsequent 
period.  Then  the  selling  price  of  a  pair  of 
boots  would  be  equal  to  40  per  cent,  of  $12,500 
divided  by  the  total  number  of  pairs  of  boots 
distributed  (not  pairs  produced) ;  or  would  be 
two-fifths  of  commercial  cost.  Messrs.  Robin- 
son, therefore,  in  respect  of  $12,500  of  retail 
invoices  turned  in  by  them  (which  would  in- 
clude their  own  labor  and  commission)  would 
be  credited  with  60  per  cent,  of  that  sum  against 
the  check  originally  sent  them  (out  of  which 
they  paid  Messrs.  Brown),  recovering  the  re- 
maining 40  per  cent,  from  the  actual  purchasers 
of  the  boots,  and  reimbursing  the  Clearing- 
house; who,  after  balancing  Messrs.  Robinson's 
account,  would  write  down  their  own  credits  by 
that  amount.    This  would  leave  the  credit-capi- 


126  ECONOMIC  DEMOCRACY 

tal  of  the  commimity — ^that  is  to  say,  the  finan- 
cial estimate  of  potential  capacity  to  deliver 
goods — ^written  up  by  60  per  cent,  of  $12,500, 
which  is  .an  accounting  reflection  of  the  actual 
situation. 

From  this  point  of  view,  all  semi-manufac- 
tures become  simply  a  form  of  tool  power,  and 
are  subject  to  the  same  treatment  as  manu- 
facturing plant;  they  are  a  form  of  capital 
assets  to  be  depreciated  and  written  down  from 
time  to  time.  There  is  absolutely  no  difference 
in  principle  between  the  treatment  in  this  man- 
ner of  a  tool  which  wears  out  in  five  years '  time 
and  a  unit  of  energy  which  is  dissipated  in  a 
few  minutes  in  driving  the  tool. 

We  arrive,  then,  at  a  conception  of  credit  em- 
ployment, by  which  all  semi-manufactures  are 
treated  as  additions  to  communal  capital  ac- 
count; subject  to  writing  down  as  they  are  ac- 
tually consumed  as  ultimate  products.  In 
order  to  be  effective  the  writing  down  must  take 
the  form  of  a  cancellation  of  credit-capital,  a 
process  which  is  done  quite  simply  and  auto- 
matically by  the  application  to  the  capital  ac- 
count of  retail  clearing  invoices  in  the  manner 


ECONOMIC  DEMOCRACY  127 

roughly  outlined,  or  by  any  other  device  which 
is  based  on  the  dynamic  conception  of  industry. 

Exactly  the  same  treatment  is  applicable  to 
the  installation  of  fresh  tools,  buildings,  etc., 
although  for  convenience,  no  doubt,  separate 
accounts  for  such  assets  would  be  desirable, 
since  the  writing  down  would  be  done  at  some- 
what longer  intervals. 

We  have  now  clearly  arrived  at  a  point  where 
there  is  a  direct  relation  between  effective  de- 
mand and  prices,  as  distinct  from  the  relation 
between  costs  and  prices.  Let  us  now  imagine 
a  single  adjustable  tax  applied  to  all  produc- 
tion, of  such  magnitude  as  to  bring  prices  from 
those  fixed  by  the  foregoing  method  to  the  suit- 
able international  exchange  level.  In  existing 
circumstances,  without  affecting  present  prices, 
such  a  tax  would  pay  the  interest  on  the  War 
Loan  many  times  over.  Let  such  a  tax  be  ap- 
plied to  this  purpose,  the  War  Loan  being  dis- 
tributed in  the  manner  described  and  possibly 
increased  by  additions  from  Clearing-house 
transfers.  It  is  clear  that  a  rise  in  external 
prices  would  be  met  by  an  increased  distribu- 
tion, while  a  greater  internal  eflficiency  would 


128  ECONOMIC  DEMOCRACY 

have  a  similar  result.  Such  an  arrangement 
would  make  it  possible  to  effect,  in  fact,  would 
certainly  induce,  a  transition  from  a  purely 
competitive  world  system  to  one  exhibiting  in 
concrete  form  the  demand  for  co-operation 
without  regimentation,  which,  beyond  all  ques- 
tion, underlies  the  so-called  proletarian  revolt. 
It  may,  perhaps,  at  this  juncture,  be  desir- 
able to  emphasize  the  obvious,  to  the  extent  of 
pointing  out  that  no  financial  system  by  itself 
affects  concrete  facts;  that  the  object  of  meas- 
ures of  the  character  indicated  is  the  provision 
of  the  right  incentive  to  effort,  and  the  removal 
of  any  possible  incentive  to  waste ;  and  only  to 
the  extent  that  these  are  achieved,  is  the  eco- 
nomic emancipation  of  the  individual  brought 
nearer  to  reality.  Had  the  principles  under- 
lying these  suggestions  been  generally  under- 
stood and  accepted  during  the  war,  we  should 
have  experienced  a  steady  decrease  of  purchas- 
ing power  by  every  individual,  which  would 
have  enabled  us  to  resume  the  general  improve- 
ment in  social  conditions  at  its  close,  without 
that  misunderstanding  of  facts  which  now 
threatens  catastrophe.    The  depreciation  rate 


ECONOMIC  DEMOCRACY  129 

would,  in  a  manner  quite  similar  to  that  with 
which  we  are  familiar  in  the  case  of  the  Bank 
rate,  have  been  raised  at  suitable  intervals  to 
represent  the  excess  of  destruction  over  pro- 
duction ;  the  necessity  of  increased  effort  would 
have  been  brought  home  to  every  individual  by 
decreased  distribution  in  respect  of  National 
Capital  assets,  and  the  general  atmosphere  of 
distrust  and  recrimination,  from  which  we 
suffer  as  a  result  of  confusion  of  thought, 
would  probably  not  have  arisen. 


CHAPTER  XI 

The  League  of  Nations — Its  form  dependent  on  economic 
system— ^Ultimate  defeat  of  Centralist  Policy  certain — 
How  a  League  of  Free  Peoples  can  come. 

THE  awful  tragedy  of  waste  and  misery 
through  which  the  world  has  passed  dur- 
ing the  years  1914-19  has  brought  about  a 
widespread  determination  that  the  best  efforts 
of  which  mankind  is  capable  are  not  too  much 
to  devote  to  the  construction  of  a  fabric  of  so- 
ciety within  which  a  repetition  of  the  disaster 
would  be,  if  not  impossible,  unlikely;  and  the 
major  focus  of  this  determination  has  found  a 
vehicle  in  the  project  commonly  known  as  the 
League  of  Nations. 

The  immense  appeal  which  the  phrase  has 
made  to  the  popular  and  honest  mind  has  made 
it  dangerous  to  fail  in  rendering  lip  service  to 
it;  but  it  is  fairly  certain  that,  under  cover  of 
the  same  form  of  words,  one  of  the  most  gi- 
gantic and  momentous  struggles  in  history  is 
waged  for  the  embodiment  of  either  of  the  op- 
posing policies  already  discussed. 

130 


ECONOMIC  DEMOCRACY  131 

The  success  of  an  attempt  to  impose  an  eco- 
nomic and  political  system  on  the  world  by 
means  of  armed  force  would  mean  the  culmina- 
tion of  the  policy  of  centralized  control,  and  the 
certainty  that  all  the  evils,  which  increasing 
centralization  of  administrative  power  has 
shown  to  be  inherent  in  a  power  basis  of  so- 
ciety, would  reach  in  that  event  their  final  tri- 
umphant cHmax. 

But  there  is  no  final  and  inevitable  relation 
between  the  project  of  international  unity  and 
the  policy  of  centralized  control.  Just  as  in  the 
microcosm  of  the  industrial  organization  there 
is  no  difficulty  in  conceiving  a  condition  of  in- 
dividual control  of  policy  in  the  common  inter- 
est, so  in  the  larger  world  of  international  in- 
terest the  character  and  effect  of  a  League  of 
Free  Peoples  is  entirely  dependent  on  the  struc- 
ture by  which  those  interests,  which  individuals 
have  in  common,  can  be  made  effective  in 
action. 

Now,  unless  the  earlier  portions  of  this  book 
have  been  written  in  vain,  it  has  been  shown 
that  the  basis  of  power  in  the  world  to-day  is 
economic,  and  that  the  economic  system  with 


132  ECONOMIC  DEMOCRACY 

which  we  are  familiar  is  expressly  designed  to 
concentrate  power.  It  follows  inevitably  from 
a  consideration  of  this  proposition,  that  a 
League  of  Nations  involving  centralized  mili- 
tary force  is  entirely  interdependent  upon  the 
final  survival  of  the  Capitalistic  system  in  the 
form  in  which  we  know  it,  and  conversely  that 
the  fall  of  this  system  would  involve  a  totally 
different  international  organization.  A  super- 
ficial survey  of  the  position  would  no  doubt 
suggest  that  the  triumph  of  central  control  was 
certain;  that  the  power  of  the  machine  was 
never  so  great;  and  that,  whether  by  the  aid 
of  the  machine-gun  or  mere  economic  elimina- 
tion, the  scattered  opponents  to  the  united  and 
coherent  focus  of  financial  and  military  power 
would  within  a  measurable  period  be  reduced 
to  complete  impotence  and  would  finally  dis- 
appear. 

But  a  closer  examination  of  the  details  tends 
to  modify  that  view,  and  to  confirm  the  state- 
ment already  made,  that  a  pyramidal  adminis- 
trative organization,  though  the  strongest 
against  external  pressure,  is  of  all  forms  the 
most  vulnerable  to  disruption  from  within. 


ECONOMIC  DEMOCRACY  133 

We  have  already  seen  that  a  feature  of  the 
industrial  economic  organization  at  present  is 
the  illusion  of  international  competition,  aris- 
ing out  of  the  failure  of  internal  effective  de- 
mand as  an  instrument  by  means  of  which  pro- 
duction is  distributed.  This  failure  involves 
the  necessity  of  an  increasing  export  of  manu- 
factured goods  to  undeveloped  countries,  and 
this  forced  export,  which  is  common  to  all 
highly  developed  capitalistic  States,  has  to  be 
paid  for  almost  entirely  by  the  raw  material  of 
further  exports.  Now,  it  is  fairly  clear  that 
under  a  system  of  centralized  control  of  finance 
such  as  that  we  are  now  considering,  this  forced 
competitive  export  becomes  impossible;  while 
at  the  same  time  the  share  of  product  consumed 
inside  the  League  becomes  increasingly  de- 
pendent on  a  frenzied  acceleration  of  the 
process. 

The  increasing  use  of  mechanical  appliances, 
with  its  capitalization  of  overhead  charges  into 
prices,  renders  the  distribution  of  purchasing 
power,  through  the  medium  of  wages  in  par- 
ticular, more  and  more  ineffective;  and  as  a 
result  individual  discontent  becomes  daily  a 


134  ECONOMIC  DEMOCRACY 

more  formidable  menace  to  the  system.  It 
must  be  evident,  therefore,  that  an  economic 
system  involving  forced  extrusion  of  product 
from  the  community  producing,  as  an  integral 
component  of  the  machinery  for  the  distribu- 
tion of  purchasing  power,  is  entirely  incom- 
patible with  any  effective  League  of  Nations, 
because  the  logical  and  inevitable  end  of  eco- 
nomic competition  is  war.  Conversely,  an  ef- 
fective League  of  Free  Peoples  postulates  the 
abolition  of  the  competitive  basis  of  society, 
and,  by  the  installation  of  the  co-operative  com- 
monwealth in  its  place,  makes  of  war  not  only 
a  crime,  but  a  blunder. 

Under  such  a  modification  of  world  policy, 
interchange  of  commodities  would  take  place 
with  immeasurably  greater  freedom  than  at 
present,  but  on  principles  exactly  opposite  to 
those  which  now  govern  Trade.  The  manufac- 
turing conmiunity  now  struggles  for  the  privi- 
lege of  converting  raw  material  into  manufac- 
tured goods  for  export  to  less  developed  coun- 
tries. Non-competitive  industry  would  largely 
leave  the  trading  initiative  to  the  supplier  of 
raw  material.    Since  any  material  received  in 


ECONOMIC  DEMOCRACY  135 

payment  of  exported  goods  would  find  a  dis- 
tributed effective  demand  waiting  for  it,  im- 
ports would  tend  to  consist  of  a  mucli  larger 
proportion  of  ultimate  products  for  immediate 
consumption  than  is  now  the  case ;  thus  forcing 
on  the  more  primitive  countries  the  necessity 
of  exerting  native  initiative  in  the  provision  of 
distinctive  production. 

Again,  International  legislation  in  regard  to 
labor  conditions,  under  a  competitive  system, 
must  always  fail  at  the  point  at  which  it  ceases 
to  be  merely  negative,  because  it  has  ultimately 
to  consider  employment  as  an  agency  of  dis- 
tribution, and,  rightly  considered,  distribution 
should  be  a  function  of  work  accomplished,  not 
of  work  in  progress,  i.e.,  employment.  As  a 
consequence,  this  most  important  field  of  con- 
structive effort  resolves  itself  into  a  battle- 
ground of  opposing  interests,  both  of  which  are 
merely  concerned  with  an  effort  to  get  some- 
thing for  nothing.  The  inevitable  compromise 
can  be  in  no  sense  a  settlement  of  such  ques- 
tions, any  more  than  the  succession  of  strikes 
for  higher  pay  and  shorter  hours,  which  are 
based  on  exactly  the  same  conception,  can  pos- 


136  ECONOMIC  DEMOCRACY 

sibly  result  in  themselves  in  a  stable  industrial 
equilibrium. 

Examples  of  the  same  class  of  difificulty 
might  be  multiplied  indefinitely,  but  enough  has 
probably  been  said  to  indicate  the  disruptive 
nature  of  the  forces  at  work.  To  state  whether 
or  not  the  general  confusion  and  misdirection 
of  opinion  will  make  a  period  of  power  control 
inevitable,  in  order  to  unite  public  opinion 
against  it,  would  be  to  venture  into  a  form  of 
prophecy  for  which  there  is  no  present  justifi- 
cation ;  but  it  is  safe  to  say,  that  whether  after 
the  lapse  of  a  few  months,  or  a  very  few  years, 
the  conception  of  a  world  governed  by  the  con- 
centrated power  of  compulsion  of  any  descrip- 
tion whatever  will  be  finally  discredited  and 
the  instruments  of  its  policy  reduced  to  im- 
potence. 


CHAPTEE  Xn 

Concentrated  economic  power  must  be  dissipated — The  eco- 
nomic basis  of  sentiment — Education  and  propaganda — 
Democratic  control  of  the  Press — The  roots  of  Economic 
Democracy — The  End. 

AS  a  result  of  the  survey  of  the  wide  field 
JLm,  of  unrest  and  the  attempt  to  analyze,  and 
as  far  as  possible  to  simplify,  the  common  ele- 
ments which  are  its  prime  movers,  it  appears 
probable  that  the  concentration  of  economic 
power  through  the  agency  of  the  capitalistic 
system  of  price  fixing,  and  the  control  of  finance 
and  credit,  is  of  all  causes  by  far  the  most  im- 
mediately important;  and  therefore,  that  the 
distribution  of  economic  power  back  to  the  in- 
dividual is  a  fundamental  postulate  of  any  radi- 
cal improvement.  While  this,  it  would  seem,  is 
indisputable,  it  must  not  be  assumed  that  by 
the  attainment  of  individual  economic  independ- 
ence, the  social  problems  which  are  so  menac- 
ing would  immediately  disappear.  The  re- 
proach is  frequently  leveled  at  those  who 
insist  on  the  economic  basis  of  society,  that  in 

137 


138  ECONOMIC  DEMOCRACY 

them  materialism  is  rampant,  and  in  conse- 
quence the  bearing  of  sentiment  on  these  mat- 
ters is  overlooked,  and  the  immense  and  de- 
cisive influence  on  events  which  is  exerted  by- 
such  factors  is  very  apt  to  be  ignored.  There 
is  a  germ  of  truth  in  this;  but  if  such  critics 
will  consider  the  origin  of  popular  sentiment, 
the  influence  of  economic  power  will  be  seen  to 
predominate  in  this  matter  also,  whether  con- 
sidered merely  as  the  tool  of  a  policy,  or  as  an 
isolated  phenomenon. 

It  is  claimed,  and  more  particularly  by  those 
who  utilize  it,  that  ''public  opinion"  is  the  de- 
cisive power  in  public  affairs.  Assuming  that 
in  some  sense  this  may  be  true,  it  becomes  of 
interest  to  consider  the  nature  of  this  public 
opinion,  and  the  basis  from  which  it  proceeds, 
and  it  will  be  agreed  that  the  chief  factors  are 
education  and  propaganda. 

Now,  the  bearing  of  economic  power  on  edu- 
cation hardly  requires  emphasis.  In  England 
the  Public  School  tradition,  and  in  America  to 
a  less,  but  appreciable,  extent  the  College  sys- 
tem, with  all  their  admirable  features,  are 
nevertheless  an  open  and  unashamed  claim  to 


ECONOMIC  DEMOCRACY  139 

Special  privilege,  based  on  purchasing  power 
and  on  nothing  else ;  and  with  a  sufficient  num- 
ber of  exceptions,  their  product  is  pre-emi- 
nently efficient  in  its  own  interest,  as  distinct 
from  that  of  the  community.  It  is  one  of  the 
most  hopeful  and  cheering  features  of  the  pres- 
ent day  that  this  feature  is  increasingly  recog- 
nized by  all  the  best  elements  comprised  within 
the  system;  and  the  danger  of  reaction  in  the 
future  is  to  that  extent  reduced. 

But  by  far  the  most  important  instrument 
used  in  the  molding  of  public  opinion  is  that 
of  organized  propaganda  either  through  the 
Public  Press,  the  orator,  the  picture,  moving  or 
otherwise,  or  the  making  of  speeches ;  and  in  all 
these  the  mobilizing  capacity  of  economic 
power  is  without  doubt  immensely,  if  not  pre- 
ponderatingly,  important. 

When  it  is  considered  that  the  expression  of 
opinion  inimical  to  ''vested  interests"  has  in 
the  majority  of  cases  to  be  done  at  the  cost  of 
financial  loss,  and  in  the  face  of  tremendous 
difficulty,  while  a  platform  can  always  be  found 
or  provided  for  advocates  of  an  extension  of 
economic  privilege,  the  fundamental  necessity 


140  ECONOMIC  DEMOCRACY 

of  dealing  first  with  the  economic  basis  of  so- 
ciety must  surely  be,  and  in  fact  now  is,  recog- 
nized, and  this  having  been  established  in  con- 
formity with  a  considered  policy,  the  powers  of 
education  and  propaganda  will  be  freed  from 
the  improper  influences  which  operate  to  dis- 
tort their  immense  capacity  for  good. 

The  policy  suggested  in  the  foregoing  pages 
is  essentially  and  consciously  aimed  at  point- 
ing the  way,  in  so  far  as  it  is  possible  at  this 
time,  to  a  society  based  on  the  unfettered  free- 
dom of  the  individual  to  co-operate  in  a  state 
of  affairs  in  which  community  of  interest  and 
individual  interest  are  merely  different  aspects 
of  the  same  thing.  It  is  believed  that  the  ma- 
terial basis  of  such  a  society  involves  the  ad- 
ministration of  credit  hy  a  decentralized  local 
authority;  the  placing  of  the  control  of  process 
entirely  in  the  hands  of  the  organized  producer 
(and  this  in  the  broadest  sense  of  the  evolution 
of  goods  and  services)  and  the  fixing  of  prices 
on  the  broad  principles  of  use-value,  by  the 
community  as  a  whole,  operating  by  the  most 
flexible  representation  possible. 

On  such  a  basis,  the  control  of  the  sources  of 


ECONOMIC  DEMOCRACY  141 

information  in  the  interests  of  any  small  sec- 
tion of  the  conmaunity  becomes  an  anomaly 
without  a  specific  meaning ;  and  prostitution  of 
the  Press  and  of  similar  organs  of  publicity 
would  no  doubt  within  a  measurable  time  dis- 
appear because  it  would  lack  objective.  But 
there  would  still  remain  the  task  of  eradicating 
the  hypnotic  influence  of  a  persistent  presenta- 
tion of  distorted  information,  at  any  rate  so  far 
as  this  generation  of  humanity  is  concerned, 
and  it  seems  clear  that  a  radical  and  democratic 
basis  of  Publicity  control  is  an  integral  factor 
in  the  production  of  the  better  society  on  which 
the  Plain  People  have  quite  certainly  deter- 
mined. 

Thus,  out  of  threatened  chaos,  might  the 
Dawn  break;  a  Dawn  which  at  the  best  must 
show  the  ravages  of  storm,  but  which  holds  clear 
for  all  to  see  the  promise  of  a  better  Day. 


INDEX 


Administration,  not  the  key, 
19,  103 
military,  45 
fimctional,  48 
centralized,  11,  36,  47,  80,  92 
American  Declaration  of  Inde- 
pendence, 4 
Analysis,  of  Production  Eco- 
nomics, 54,  63,  66 
of  Social  Structure,  91 
of  Capitalism,  27 

Business  system,  eflBciency  of, 
75 

Ca'canny,  32,  101 
Capital  direction,  25 

definition  of  real,  106,  111 
Capitalism,  its  merits,  20 

basis  of,  27 

and  Centralism,  24,  132 

and  Militarism,  35,  132 
Cash-credits,  58,  67 
Centralism,  11,  17,  30,  47,  92, 

131 
Cost,  the  basis  of  price,  52 

definition  of,  53 

factory,  54,  66 
Costing,  29,  116 
Credit    banking,    28,    29,    57, 
114,  116 

definition  of  real,  112 

center,  116 

operation  of,  120,  140 
Currency,  inflation  of,  29,  63 

Darwinian  Theory,  abuse  of, 
8,  27 


Debt,  War,  113,  138 

Debtor,  State  not  a,  107,  115 

Democracy,  the  roots  of  eco- 
nomic, 6,  140 

Distribution,  the  great  prob- 
lem, 26,  52,  69,  79,  89 

Dollar,  the  leak  in  the,  59,  60 

Economic    basis    of    Society, 

137 
Education,  influence  of,  5,  138 
Energy,  time-imit,  93,  107 

Finance,  supremacy  of,  28,  41, 
42,  47,  89 
mirage  of,  63,  72 
Freedom,  basis  of,  6,  118 
Function,  separation  of,  88 

Golden  Age,  90 

Industrial  organization,  45 

Jevonian  Economics,  27 

Manufactures     ( semi- ) ,    rela- 
tion to  credit,  62 
Mediaevalism,  42,  90 
Money,  definition  of,  28 

Nations,  League  of,  130  e*  aeq. 

Organization,  use  of,  9 

Pay,  69,  98 
Piece-work,  31,  99 
Price,  and  cost,  53,  107 
the  Just,  91,  102,  124 


143 


144 


INDEX 


Production,  accounting  of,  54 
super-,  61 
to  a  program,  97 

Sabotage,  economic,  69 
Shop-Steward  System,  81,  108 
Servile  State,  21 
Servility,  16,  19 
Socialism,  20,  22 


State  systems,  7 
Syndicalism,  24 

Trusts,  24 

Ultra-Modernism,  91 
Unionism,  Trades,  82 

War,  causes,  70,  134 
Wealth,  65 


V 


sfy'^stij: 


A     000  677  925'    o 


